The Risks in Working with Debt Settlement Companies

 Posted on December 09,2017 in Debt Collection

When debtors are worried about their ability to repay their creditors, they become susceptible to people who offer quick fixes. Some debt settlement companies are taking advantage of this by advertising misleading debt relief claims to debtors, such as:

• Being able to eliminate debts in months without bankruptcy;
• Stopping calls from debt collectors;
• Relieving their debts without affecting their credit ratings; and
• Allowing them to continue the same lifestyle with no consequence.

Debt settlement companies tout their services as a win for all parties. The debtor relieves his or her debt, and the creditor receives some compensation for the debt. As a creditor, you know the downside of working with debt settlement companies. They ask debtors to send payments to them instead of you, delaying your reimbursement by years. Once the company has accumulated enough of the debtor’s money, it will come to you with a lower settlement offer than what you may have been able to negotiate directly with the debtor. However, the debtor may have more to lose than you from using a debt settlement company. You can help yourself and your debtors by explaining the drawbacks to them:

1. A debt settlement company cannot stop you from contacting them about their outstanding debts. Instead, you are more likely to contact them because they have stopped making any payments.
2. You are not obligated to work with a debt settlement company. Some companies regularly make unacceptable settlement offers or are generally disreputable.
3. The debt settlement company’s plan will increase their debts. A debtor may need to stop paying you for years in order to save enough money to make a settlement offer. During that time, you are likely to add interest to what is owed.
4. They may pay more using a debt settlement company than if they had negotiated directly with you. Besides the company’s fees, there is a tax obligation. The IRS considers any debt that you forgive to be taxable income for the debtor.
5. Nothing is stopping you from suing them for their outstanding debts. If the court rules in your favor, you may use tools such as asset seizure and wage garnishment to collect your debt.
6. The debt settlement process will hurt their credit ratings. Intentionally missing debt payments will affect how future creditors will view them.

Reaching an Agreement

Debt settlement is an option to retrieve some money from a debtor if you believe you may get nothing from him or her otherwise. However, you are better off negotiating directly with the debtor than a debt settlement company. A Chicago debt collection attorney at Dimand Walinski Law Offices, P.C., can lay out the debt collection options available to you. To schedule a consultation, call 312-704-0771.

Source:

https://www.consumer.ftc.gov/articles/0145-settling-credit-card-debt