Since October 17, 2005, a lot of people have become interested in debt
settlement as an alternative to bankruptcy. That's the date the new bankruptcy
law went into effect, and it's been a rude awakening for many consumers seeking
a fresh start in bankruptcy court.
It used to be that 7 out of 10 people filing personal bankruptcy
were granted Chapter 7 status, where the unsecured debts are totally wiped away.
That has changed under the new rules. If your income is above the median for
your state, or you can pay back at least $100 per month toward your debts, then
you'll be turned down for Chapter 7. Instead, you'll be shifted into Chapter 13,
where you pay back a portion of the debt over a 5-year period.
It gets worse. When the court calculates your allowable living
expenses, it will use the approved IRS schedules, not your actual documented
expenses. So even if you don't think you can pay $100 a month or more, the judge
will probably disagree. Instead of a fresh start, many people will be faced with
the grim reality of a harsh 5-year plan, on a court-mandated budget that forces
them to adopt a much lower standard of living. That's where debt settlement
starts to look pretty attractive.
Yes, I know debt settlement has its critics. I've criticized
aspects of the industry myself. But what the critics don't seem to understand is
that this approach is for people who would otherwise go bankrupt! Let's examine
the three main complaints against debt settlement and see where the critics are
missing the mark.
"Debt settlement has a negative impact on your credit score."
Wow. Big deal! Pretend it's two years from now. Would you rather
have an A+ credit rating or be totally free of debt? Pick one please, because
you can't have both. All debt reduction programs have a negative impact on
credit scores. That's why only people who truly can't keep up with their bills
should go into one of these programs. But it's pointless to worry about your
credit while you're being crushed with debt. That's like worrying about how the
yard looks after your house has burned down.
"You might have to pay taxes on the canceled portion of the
debt."
I've always been amazed at how frequently this lame criticism is
repeated in article after article. Yes, it's possible that you may need to pay
taxes on forgiven debt balances, but the odds are against it. That's because the
IRS allows insolvent taxpayers to exclude canceled debts. So unless you have a
positive net worth, you probably won't need to pay taxes on your settlements.
And even if you did, so what? You'd be paying taxes because you saved a bunch of
money off your debts! And this is a problem?
"Collection activity will continue and you might get sued."
Yes, if you fall behind on your bills, your creditors will most
certainly continue attempts to collect what's owed, and one or more of those
creditors might sue you in civil court. But again, this criticism totally misses
the mark. Collection activity is already a function of being in debt trouble. At
least debt settlement allows the consumer to use the collection process to
eliminate debt through negotiated compromises. Even lawsuits need not be cause
for panic, since they can often be settled out of court. The only reason to
allow a legal action to proceed to the point of wage garnishment, property lien,
or bank levy is lack of financial resources with which to settle. And if that's
the case, the debtor should be talking to a bankruptcy attorney anyway.
In contrast, let's look at some of the positives of debt
settlement.
1. You can save $1,000s versus any other method of debt
elimination (except for Chapter 7 bankruptcy, which has become more difficult to
accomplish now that the new law is in effect).
2. You can get out of debt in 2-3 years, and much faster if there
is some available home equity to work with. This is a lot better than 5 years in
the financial boot camp of Chapter 13 bankruptcy, or 5-9 years in a credit
counseling program.
3. You keep control over the process more than with any other
approach.
4. You maintain personal privacy. With bankruptcy, your case file
becomes a matter of public record, easily located via Internet search by future
employers, landlords, or creditors.
5. You retain your dignity while working through your financial
problems. Bankruptcy still feels like failure to a lot of people. Debt
settlement represents an honest and ethical alternative to that extreme
solution.
6. You can adjust your monthly funding into the settlement
program up or down depending on real-world conditions in your financial life. If
your income fluctuates from one month to the next, or you get hit with an
unexpected expense, it won't torpedo the whole program. The built-in flexibility
of debt settlement gives it a huge advantage over other options, all of which
require a fixed monthly payment.
Once you've made the determination that a debt settlement program makes
sense for your situation, apply now for United
Communications Debt Settlement Program! United Communications is here to help
you!
Article reproduced in part, written by Charles J. Phelan who has
been helping people become debt-free without bankruptcy since 1997. A former
executive in the debt settlement industry, he teaches the do-it-yourself method
of debt negotiation. |
