What Are Debt Settlement And Debt Consolidation?
Debt settlement, also known as debt negotiation, is a process of asking your credit card company to accept less than what you owe. Debt consolidation loans attempt to consolidate all of your debts into a single payment that presumably would be less than you were paying before. However, neither approach offers any guarantees.
At Cunningham, Chernicoff & Warshawsky, P.C., in Harrisburg, we offer a free initial consultation to explore your debt relief options. We can explain the pitfalls and solutions to these options to you clearly and plainly. Then, we can help you understand some of the better ways forward.
How Debt Consolidation And Debt Settlement Work
When you pursue a debt consolidation or debt settlement on your own and without legal assistance, you take several chances. You may not realize the disadvantages ahead of you, which include such scenarios as:
- You may end up paying thousands of dollars to a debt settlement firm to negotiate with creditors on your behalf. However, one or more of your creditors may refuse to negotiate.
- Even if a creditor agrees to accept less, the IRS views debt forgiveness as income, so you would have to pay taxes on any forgiven debt.
- Even after consolidating your debts into one loan, you may not be able to keep up with payments.
For many people, Chapter 7 or Chapter 13 bankruptcy is a better option. Chapter 7 bankruptcy allows you to discharge 100% of many types of unsecured debt, including credit card and hospital bills, whether or not the creditor agrees. In addition, the discharged debt will not be taxable.
Chapter 13 bankruptcy works like a debt consolidation plan, except you can reduce your debts to an amount the bankruptcy trustee determines you can pay. This is usually far less than you owe. Discharged debt is tax-free.
For More Information About Bankruptcy
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.