San Fernando Debt Settlement Lawyers
Debt settlement is a renegotiation of the agreement between you and your lender. This new agreement could be keeping your amount of debt the same, but lowering your interest rate so that it’s easier for you to make payments; or, it could be lowering the amount you owe and allowing you to pay it in one lump sum. Why would your lender agree to accept less than the total amount you owe? Well, oftentimes the debtor’s only other option is bankruptcy. So, a lender would rather get part of the debt you owe in a settlement than get nothing in a bankruptcy. Plus, by the time you’re considering debt settlement, you’ve probably already paid back more than you originally borrowed.
Is Debt Settlement For You?
There are pros and cons of using debt settlement to erase your debt.
The pros are:
- Lenders are often willing to cut your debt in half, or more.
- It is harmful to your credit score, but less harmful than a bankruptcy.
- A bankruptcy stays on your credit history for 10 years, a debt settlement only stays on your credit history for only seven.
- It’s an option if your credit score is too low to get a debt consolidation loan.
The cons are:
- You have to have enough cash, or access to it, to pay off the lump sum agreed upon.
- A debt settlement generally takes two to three years, which means 24 to 36 months of late fees and penalties and additional damage to your credit score.
- If you have more than one creditor, you will have to negotiate with each one individually - again, more time and more fees, penalties, and credit damage.
- The lender can refuse. Lenders don’t have to accept settlement offers.
- The IRS may count the amount forgiven as income.
- If you seek a debt settlement through a debt settlement company, they will charge you additional fees.
Debt Settlement vs. Debt Consolidation
Debt consolidation involves taking out a lower interest loan to pay off multiple higher interest debts. The idea is to reduce your monthly payments to make them more manageable. The disadvantage of debt consolidation is that the debt doesn’t go away. You still have to pay it, but with lower payments at a lower interest rate. The good thing is that it doesn’t hurt your credit rating. Debt settlement gets rid of your debt, but it’s bad for your credit rating. However, if your credit is so bad that you can’t get a consolidation loan, debt settlement or bankruptcy may be your only choice.
Debt Settlement vs. Chapter 7 Bankruptcy
There are many aspects of both Debt Settlement and Chapter 7 Bankruptcy to compare and contrast. See below:
Debt Settlement (DS): Takes 24 to 36 months. During that time you’ll be charged interest and late fees - your debt will grow.
Chapter 7 Bankruptcy (C7): Your debts will be gone within 90 days.
DS: Your creditors can sue you over your debt.
C7: You’re protected once your Chapter 7 is final.
DS: You’ll be able to get unsecured credit within 24 months.
C7: You’ll be able to get unsecured credit within 24 months.
DS: The typical fee you’ll pay is about 20 percent of what you owe.
C7: The typical fee for filing Chapter 7 is $1,000 to $2,000.
DS: According to the FTC, the success rate for Debt Settlement is 10 percent.
C7: The success rate for Chapter 7 is close to 100 percent.
Debt settlement works best for unsecured debt, meaning debt for which there is no collateral. Collateral is something that has value that can be retrieved by the lender, like a car. Credit card debt is the perfect example of unsecured debt. Debt from a government entity, such as a student loan, is unsecured debt, but it’s highly unlikely that a government lender will accept a settlement.
Finding your way out of debt can be very complicated, with many options to consider. Having a skilled debt reduction attorney to negotiate with your creditors on your behalf is vital to the success of your settlement, consolidation, or Chapter 7 Bankruptcy. Before you make any decisions, speak with one of the experienced San Fernando Valley bankruptcy attorneys of Nader & Berneman in the San Fernando Valley. Call (800) 568-0707 today, for a free consultation.
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