What Are Debt Settlement And Debt Consolidation?
You have probably seen radio or television ads for debt settlement, debt consolidation or bankruptcy alternatives. On the surface, they may seem too good to be true, offering to reduce your credit card or other debt to pennies on the dollar without filing bankruptcy. In most cases, the offers are too good to be true.
At Cunningham, Chernicoff & Warshawsky, P.C., in Harrisburg, we offer a free initial consultation to explore your debt relief options. Call us at 717-260-3527 to talk to a lawyer about your situation.
How Debt Consolidation and Debt Settlement Work
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. For example:
- 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 percent 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
Learn more about bankruptcy solutions:
Are there alternatives to bankruptcy?
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.