Debt Settlement Q & A

A: If you've been paying your bills on time and have an excellent credit score, than the debt settlement process will have a negative impact on your credit. Keep in mind, debt settlement is a bankruptcy avoidance strategy. So if you're undecided about settling your debt because of credit score implications, then you probably don't require the service anyway. Please note, there is absolutely no service that can reduce a principal debt balance that does not negatively affect credit.

2) Q: What should I do when debt collectors start calling?

A: Because the debt settlement process requires you to stop paying creditors directly, receiving calls from debt collectors is inevitable. So when a debt collector calls, you will redirect them to contact your attorney's office. And they must contact the attorney's office as it is Federal law. You will have the option to sue for FDCPA violations if the collection harassment persists.

3) Q: I want to reduce my debts through the law firm, but do I have to meet with an attorney or go to court?

A: No, this is not bankruptcy. You will execute a Power of Attorney that enables the attorneys to represent you. The law firm will communicate directly with your creditors on your behalf. You will have telephone access to the law firm should you have any questions during the settlement process. In some instances you may speak with an attorney over the telephone, but you will not have to meet with a lawyer or have to go to court.

4) Q: How much does the debt settlement service cost?

A: Attorney fees come from the money you already owe to creditors, so you won't have to write out a separate check to pay for the debt relief services. In most cases, and depending on the law firm, the attorneys will charge a percentage of your total debt and sometimes a monthly service fee. Once enrolled into the settlement program, all fees and payments are included with your new monthly payment. There are no large lump sum, upfront costs.

5) Q: Should I refinance my home with a debt consolidation loan to pay off the credit cards?

A: We encourage you to thoroughly investigate all of your options. Keep in mind that when you refinance your home with a debt consolidation loan to pay off your debts, you are then shifting unsecured debt into secured debt. This puts your home at risk should you not be able to make the payments. The debt settlement service allows you to reduce your debt without risking your home.

6) Q: When should I stop using my credit cards?

A: Once you have enrolled into debt settlement program and have stopped making payments to your creditors, it is recommended that you stop using those cards immediately. Those accounts will eventually be closed.

7) Q: Is bankruptcy a better alternative to debt settlement?

A: Possibly, depending on your circumstances. However in most cases it is not because bankruptcy has a long term negative impact on your credit worthiness and can be a demoralizing process. In addition, the new bankruptcy laws make it almost impossible to put credit card debt into a bankruptcy filing. Bankruptcy is a huge step with implications that will last for many years, so check it out with caution. We do not give legal advice so if you are considering bankruptcy you should consult with a licensed bankruptcy attorney.

8) Q: What happens if I receive a summons from a creditor?

A: Creditors reserve the right to sue a debtor for non payment of a debt. However, it is very rare and not common. Should a lawsuit be filed while in the program, the attorneys will help you answer that summons and in most every case, a quick settlement deal can be reached and the lawsuit dropped. Do not take threats of a lawsuit over the phone seriously, most of the time these are just debt collection scare tactics. You will be instructed to forward all calls to the attorneys.

9) Q: Does the debt settlement process affect my ability to purchase or refinance my home?

A: Yes. Since sub-prime mortgage loans (less than perfect loans) are not easy to qualify for anymore, it is recommended that you do not begin the debt settlement program until after purchasing or refinancing is complete. That way the service can in no way affect the terms of your loan qualifications.

10) Q: Do I have to enroll all of my credit cards?

A: No, you can choose the cards that you want to enroll. However, you should be aware of the following: Once a card has been enrolled into the service the credit card company will cancel that card and close the account. If you have multiple cards from the same lending institution, the lending institution will most likely cancel the others. If you want to keep a credit card open, it is best not to enroll that account related to an account into the program.

11) Q: Will I owe money to the IRS for my reduced debt amount?

A: The IRS permits consumers to write off any "income" from canceled debts up to the amount by which they were "insolvent" at the time. Therefore, unless you have a positive net worth you ordinarily are not obligated to pay taxes on forgiven debt amounts. Additionally, if you do not qualify as insolvent, non-principal amounts such as fees accumulated on the account may be deducted from the amount reported. Consult your personal tax advisor for advice specific to your tax situation. Visit IRS.gov for more information.

12) Q: When will my creditors be paid their settlement?

A: The attorneys manage all negotiations and financial transactions on your behalf with your creditors. We can not say for certain when those negotiations will be complete. Most cases are resolved starting thereafter 12 months given there is enough funds to pay out the settlement.

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