Tag: debtcollector

The Secret Risks of Debt Settlement

in Bankruptcy

If you’re maxing out credit cards every month and just making the bare minimum payment, you’re going about all this the wrong way.  You’re financing a lifestyle at a very high rate of interest and creating a lot of financial risks for yourself.  

I know you hear the ads all the time.  “USA FREEDOM CREDIT CARD DEBT RELIEF WILL SAVE YOU THOUSANDS!” Shouts some announcer on the radio, or maybe you’re scrolling social media and see smiling happy people with a prompt to contact someone to settle your debt for pennies on the dollar.  

It sounds too good to be true and it often is.   The FTC gives warnings about these types of schemes and I’m linking to it here.

The problem is, most of the companies don’t disclose how this actually works and that opens you up to tons of risks.  You’re not getting something for nothing.  

In fact, you could actually end up in more debt and with worse credit than you had when you started. 

So, how does it actually work?

In a debt settlement arrangement, a borrower (you) or someone representing the borrower contacts a credit card company and asks for a settlement.  Mind you, this only works if you can pay off the full balance at one time. 

The guy at Monster Mega Bank, N.A. hears this and thinks, “OMG, these people are going to file bankruptcy and we’re going to get nothing, let’s see if they’ll settle for half.”

Now, here’s the problem.  You don’t have thousands to pay them, even if they will settle for a significantly reduced amount. 

So, what do we do? Well, the debt settlement company opens up a shiny new line of credit in your name and uses that money to pay off the credit card company.  

Now, that may not sound too bad…but here’s the catch.  1. The debt settlement company is going to make tons of money off of you.  2. Monster Mega Bank, N.A. is going to report a “settlement” on your credit, and that’s going to hurt your score. 3. You’re still making payments to the debt settlement company and guess what? Now you don’t have revolving credit to help make ends meet. These are the biggest risks of the debt settlement process.  

Why Bankruptcy Eliminates the Risks

Debt settlement services rely on credit card companies writing off a portion of your debt.  Not only does that hurt your credit score, it can also have serious tax implications.  

The IRS treats forgiven debt like income but debts discharged in bankruptcy are completely tax free. 

If Monster Mega Bank, N.A. forgives $25,000 worth of debt, you’re going to get a 1099 that will treat that forgiven debt as income.  Then you’re going to owe taxes on  $25,000 in extra income. 

That’s a risk they didn’t tell you about.

Additionally, there’s no guarantee that Monster Mega Bank, N.A. is going to work with USA Freedom Debt Relief Company anyways. 

Then you’re right back at square one. 

That’s where bankruptcy comes in.  

In bankruptcy, Monster Mega Bank, N.A., has no choice but to work with you. It’s federal law. 

In bankruptcy you may be entitled to a full discharge of your unsecured debts or you may be able to pay back only a small portion of them with a very manageable interest rate.  

Another good thing is, bankruptcy increases your credit score starting the day you file.  

Is that too good to be true? Actually, no.  A government study confirmed it. 

Bankruptcy actually gets rid of the derogatory marks on your credit report and allows most people to obtain new credit within months of your discharge.  

If you’re concerned about the risks of debt settlement or you’ve already been the victim of a debt settlement gone wrong, give us a call.  Bankruptcy is a powerful tool that can help clean up a lot of the messes that debt settlement causes.

Don’t be scared

in Bankruptcy, Credit and Credit Cards

Scared

Often,  I advise my clients to cease making payments to credit card companies in preparation for a bankruptcy filing.  After all, if the debt will be discharged anyways, that last $29 minimum payment isn’t going to break Wells Fargo. 

I often get looked at like I just asked them to shoot a puppy. 

They’re scared and bumfuzzled. What on earth?

“If I don’t make my payment, won’t they send me to collections?”

To many of my clients, being in “collections” is the worst thing ever.  Almost like a prison even, complete with the dank, dingy cells and the rattling bars. 

Chances are, as long as you file within a reasonable time, there’s no need to be scared. You’ll probably never even hear from a bill collector. 

The weapons they deploy

Most of the tools at the disposal of a debt collector are psychological.  

They call and harass (alot) to try to get you to pay up.  If you don’t there isn’t much else they can do without deploying their next weapon.  

A lawsuit.

This is where things get hairy.  In the State of Georgia, a lawsuit can (and often does) result in a garnishment.  They can take 25% of your pre-tax income. 

I don’t know about you, but if I lost 25% of my pre-tax income, I’d be up a creek. 

The good news is, bankruptcy stops garnishments dead in their tracks, but that’s not the point of this blog. 

What really matters 

The problem with debt collectors is that they have you focused on the wrong thing and they often have you scared for no reason. 

They want you to worry about their problem.  Namely, the debt you (supposedly) owe them. 

They are concerned about getting their money, but often, paying this one bill isn’t going to solve all your problems.  In fact, it may make them worse.  

You need to be focused on solving the bigger problem: What does the totality of your financial life look like? 

First, don’t let debt collectors distort your priorities. There are bills that absolutely need to be paid first.  Mortgages, child support, rent, car payments, taxes.  Without a roof over your head or a car under  your bottom, you can’t get to work. 

Additionally, the government is way more aggressive than any collection agency could ever dream of and the government doesn’t give up. 

I try to impart upon my clients this important lesson.  Don’t worry about one debt collector. Worry about the whole health of your finances.  

In the end, you need to be able to sort out your finances and find a way to live in financial peace and comfort.  

You need to be able to sleep at night, make ends meet and retire one day. 

That’s why you need to call me.