Broke in Atlanta — The Truth About Debt Settlement Companies
The long term effects of the Great Recession are still being felt in Georgia, where the jobless rate reached 10.3 percent last month. To get by, many Georgians have relied on credit cards to tide themselves through the economic slump - although few expected the downturn to last as long as it has.
Now, many families are finding themselves deeper in debt than they ever dreamed possible. Homeowners have watched the equity in their homes disappear and their home values slip underwater.
A mass of debt settlement companies have emerged from this mess, flooding the airwaves with promises of an easy resolution. But, the truth about debt settlement companies is not as great as it may seem. A deeper exploration into the operation of debt settlement companies reveals a number of problems for individuals and reasons why families struggling to get by should contact an Atlanta bankruptcy lawyer to discuss their options.
Too Good to Be True?
Debt settlement companies are enticing individuals with claims that the company can negotiate with creditors, reducing the amount of money by 30-70 percent with only a modest or no impact to the person's credit. Some even claim that negative credit information can be removed from a credit report when their program has been completed.
Debt settlement companies operate by having people send money to the company rather than their creditors. This money is supposedly held in an account which will be distributed to the creditors once the settlement has been complete.
If it sounds too good to be true, that's because it probably is. According to the Federal Trade Commission, debt settlement companies frequently make a series of promises they cannot keep.
Debt settlement sounds like a solution, but the reality can be very different. Many unhappy debtors discover debt settlement does not always bring them closer to resolution.
The truth is this - debt settlement companies have no more power to get creditors to negotiate than an individual does. There are no federal laws which compel creditors to negotiate or accept partial payment of a debt.
Creditors do, however, have to report missed payments or late payments. While a person is making payments to a debt settlement company, the creditors will not be paid, and interest will be added to the balance that is owed.
Even worse, creditors can take legal action during this time. Debt settlement companies do not provide any protection from creditors who choose to sue. Once a judgment has been obtained, a creditor may try to garnish bank accounts or wages to recover the money that is owed to them.
Even if a debt settlement company is able to negotiate a deal, there may be tax consequences for the debt that is not repaid. Debt that is forgiven by a creditor is considered income in most cases. People are frequently shocked when they get taxed on money that they thought they did not owe. This can lead to taxes and penalties owed to the IRS, which can put families back in the red again.
Finally, there are fees associated with a debt settlement company that are often expensive in and of themselves. While the settlement company cannot legally charge a fee before they have settled or negotiated a person's debt, they can charge a monthly maintenance fee.
Advantages of Bankruptcy
People are often reticent to consider bankruptcy because they are confused by some of the common myths about bankruptcy. A frequent fear of potential filers is that they will be forced to give up everything when they file bankruptcy. This is simply not true. The bankruptcy laws were designed to give individuals a fresh start. There are specific exemptions available to protect individual assets. A lawyer will explain which assets can be protected when they meet with a potential client.
Another common misconception about bankruptcy is that it will prevent an individual from ever obtaining credit again. People are able to work on re-establishing their credit as soon as their bankruptcy is finished because their debts are discharged or wiped out.
For many, bankruptcy can be a faster way to re-establish their credit than using a debt settlement company. Bankruptcy gives people the opportunity to start over right away, where debt settlement agreements typically take years, severely damaging a person's credit throughout that time.
It is also unfortunately true that most people will be unable to keep up with their debt settlement payments. An unplanned for emergency can leave many people worse off than when they started.
Bankruptcy is of the greatest relief to people who are losing sleep because of the stress caused by continual collection calls from creditors. Bankruptcy has the power to stop collection calls for good.
As soon as a person's bankruptcy case is filed, the individual is protected from creditors by an automatic stay. The automatic stay operates as a shield from creditors. Creditors must suspend all collection activities at that time.
This means that creditors not only have to stop calling the debtor, but if they are garnishing wages or in the midst of suing them, they must stop those proceedings as well. Wage garnishments will stop.
The automatic stay will even help people fighting to stop foreclosures of their homes. There are several options for dealing with overdue mortgages with bankruptcy. The appropriate solution will be different for each individual or family.
If you or a family member is tired of struggling with your debt and is looking for a solution, you should call an experienced Atlanta bankruptcy attorney who can examine your case and review the choices available to you.