The Risks You Take in Debt Settlement
Having several skipped or missed payments on certain types of debt can lead to collectors calling you around the clock to get their money. Sometimes it can get to the point where you’ll do anything just to stop the harassment. A common way to do so is to work with a debt settlement company and have them negotiate your debt to reduce the amount owed. While this may seem like an ideal scenario on the surface, it’s far from a guaranteed good outcome. Any bankruptcy lawyers in Houston will tell you to proceed with extreme caution if you pursue debt settlement, and here are the main reasons why.
Additional Fees Can Add Up
While a debt settlement could reduce your debt by 50%, for example, you may end up paying the debt settlement company a 25% fee or more for their services. So in reality, the amount of debt you settled wasn’t as much as you had initially anticipated. A debt defense attorney will also caution you about fees that will add up, such as account setup fees, monthly account maintenance fees and other similar fees. These can all vary depending on the debt settlement company you work with, but the chances are very high of you having to pay more than you originally anticipated.
Damage To Your Credit
Not making your payments timely will damage your credit on its own. And this damage is only going to increase when you open up a settlement account to make debt payments. You can expect this damage to be evident on your credit reports for seven years afterward, which can significantly limit your financial freedom.
Your Forgiven Debt Can Be Considered Income
The IRS is going to get their cut out of your forgiven debt as well. Your Texas bankruptcy lawyers will make you aware that any debt that was forgiven with the help of the debt settlement company could be seen as income and will be taxed accordingly. So when you add up the taxes to go along with the fees charged by the debt settlement company, it’s easy to see why bankruptcy lawyers in Houston often advise against taking this route.
A Positive Outcome Is Not Guaranteed
There are definitely no guarantees your debt can be reduced when working with a debt settlement company. In fact, it’s entirely possible your debt will remain the same or get even worse for a longer period of time. Debt settlement is a tricky option, which is why speaking to a reputable debt defense attorney first is usually the best way to go.
Bryeans & Garcia, PLLC are more than just your average Texas bankruptcy lawyers. While we have many years of experience helping our clients with financial issues, we also treat every client with the same amount of respect every single day. We will always work in your best interest instead of the other way around, so contact us at our Houston or Ft. Worth offices today to schedule a consultation to see how we may be able to help you.