Debt can cast a shadow over every part of your life, causing constant stress and anxiety about how you will manage to keep paying your bills, putting food on the table, and avoiding foreclosure on your home or eviction from your apartment. The good news is that debt doesn’t have to continue impacting you so negatively. You may be able to dramatically reduce the amount you owe your creditors by going through a process known as “debt settlement,” which many Philadelphians use as an alternative to filing for Chapter 7 or Chapter 13 bankruptcy. Continue reading to learn more about the pros and cons of debt settlement and how the process works. Then, contact our Philadelphia debt settlement attorneys for a free consultation about how we can help you get a fresh start.
What is the Debt Settlement Definition?
It is important to emphasize that debt settlement, which is an agreement you negotiate with your creditors to pay less than what you owe, is not the same as debt consolidation. Though you may hear these terms used interchangeably, do not be misled: they are different methods of reducing consumer debt.
You might also hear “debt settlement” used to describe bankruptcy, but this is also inaccurate. Like debt consolidation, bankruptcy is a separate process that follows completely different rules and procedures from debt settlement. If your intent is to file bankruptcy, you should contact a Chapter 7 bankruptcy lawyer or Chapter 13 bankruptcy attorney in Philadelphia for assistance with the Pennsylvania bankruptcy process.
It’s important to choose the right approach in order to get maximum debt relief. With years of experience handling all three procedures, our knowledgeable attorneys can help you make a decision about whether debt settlement, debt consolidation, or bankruptcy would be best for you after hearing more about your financial circumstances during your free consultation. In the meantime, this article will give you a clearer idea of the benefits and pitfalls of the debt settlement process.
This process begins when your debt settlement lawyer makes an offer to your creditor, meaning any individual to whom, or business to which, you currently owe money. If, like many debtors, you have more than one creditor, this process will need to be repeated with each.
The figure your attorney offers to the creditor or creditors will be lower than the amount that you actually owe, possibly by thousands of dollars. If the offer is accepted, you must pay the negotiated amount. Money will be withdrawn from your checking account and deposited into a separate, dedicated account, generally over a period of several months to several years, until enough funds have been accumulated to settle the debt.
Advantages and Drawbacks of Debt Settlement
Like any approach to reducing debt, debt settlement has both pros and cons. The key is to determine whether the pros would outweigh the cons in your situation (and if not, to identify a strategy that would better serve your needs and goals).
The main advantage of debt settlement, under the right circumstances, is that it may allow you to reduce your debts both rapidly and substantially. Depending on what you owe and what your creditor or creditors are willing to accept, you could slash your debts in half, or even to a lower amount.
On the other hand, there can also be some disadvantages to debt settlement. Potential pitfalls are that:
- Debt settlement can affect your tax liability, meaning you may owe money to the Internal Revenue Service (IRS). From the perspective of the IRS, the money you saved is effectively income that you gained – and can be taxed on.
- Debt settlement can have a negative impact on your credit score, as can bankruptcy. However, taking no action to resolve your debts will also continue to lower your credit score.
- Debt settlement can take time. Though it may be possible to settle the debts within just a few months, it could also take 36 months or longer to complete the process, depending on your circumstances. This is also true of Chapter 13 bankruptcy, though Chapter 7 bankruptcy is typically completed in about four to six months.
- You may accrue interest charges and late fees while you are in the process of negotiating settlements with each of your creditors.
- Your creditor may simply refuse to accept your settlement offer, ruling out debt settlement as a possibility.
Because of these potential obstacles, it is critically important to have guidance from an experienced bankruptcy alternatives attorney in Philadelphia, who will protect your best interests while assisting you with financial documentation and advising you of your rights and responsibilities as a debtor.
Philadelphia Debt Settlement Lawyers Can Reduce What You Owe
You don’t have to keep living with overwhelming debt. Help is only a phone call away. To learn more about your options for reducing or wiping out your debts, including debt settlement, debt consolidation, Chapter 7 bankruptcy, and Chapter 13 bankruptcy, call Sadek and Cooper Law Offices, LLC at (215) 995-2543 for a free consultation. Our Pennsylvania bankruptcy law firm has handled thousands of cases, and can give you honest and transparent advice about how to most effectively reduce or get rid of your debt.