Legal Question in Bankruptcy in California

Re: debt settlement program

I think a debt settlement agreement is appropriate for a person who for various reasons is not a good candidate for Chapter 7 bankruptcy. That said, I meet very, very few people for whom a debt settlement agreement is appropriate.

Negotiating settlements will not save or improve your credit. It simply gets the debt resolved. It often takes 6 months to one year to resolve this process, in my experience. Sometimes a creditor will report the debt forgiveness to the IRS as income. This means that you might owe some income tax on the forgiven amount of any debt.

Creditors usually want payment in full of the settlement immediately. They usually do not offer installments. A good rule of thumb is to expect to pay about fifty cents on the dollar. some will be more, some will be less.

The negotiation process does not stop creditors from pursuing collections against you, until the deal is made and paid.

Also, the amount of each debt may continue to reflect accruing interest and other charges, until the time when each debt is settled or paid off. At the end of the process, you credit will probably be just as bad as it is for someone who has filed bankruptcy, and you will have paid out the money it takes to settle the debts.

From what I have seen, many companys who advertise debt settlement services are bogus. I have met far too many clients who enrolled in such programs and then got nothing for their money and wound up in bankruptcy anyway.