For many people bankruptcy is often the best option, but If you are not a good candidate for bankruptcy, then you might consider trying a debt settlement with your creditors.
Debt settlement is a negotiation process whereby a consumer seeks to settle debts away for an amount less than what is owed. This process generally involves the offer of a lump-sum amount to the creditor to settle away the debt. The consumer can either negotiate directly with the creditor or using a debt settlement company or hire an attorney to seek a settlement.
If the debt is settled and if the amount that was forgiven is more than $600 total, the consumer will receive a 1099-C form at the end of the year for “Cancellation of Debt,” which tax authorities will consider to be “ordinary income” for tax purposes.
The entire process outlined above would then be repeated for each debt the consumer has. If a consumer has several debts (e.g., credit cards) it could take months or years and thousands of dollars to settle away everything.
Generally, it will only work if you stop making payments on your debts, otherwise there is no incentive for the creditor to negotiate. When you stop making payments your credit score is going to take a major hit. If there has been a significant amount of time passed since you last made a payment, then the creditor might be more willing to negotiate.
Debt settlement can be an effective tool for dealing with debt if bankruptcy is not an option. If you are considering debt settlement, please contact one of our experienced attorneys to help explain the process.