Are there risks involved in using a debt settlement company?
In Kentucky and across the country, many Americans are struggling to pay their bills, often accumulating large debts in the process. When faced with mounting debts, it can be difficult for people to know how best to tackle the problem. When someone does not have enough money coming in to pay for necessities, finding a way to put a stop to the ever-increasing bills can seem difficult, if not impossible.
Unfortunately, some companies are seeking to exploit those in difficult financial situations by making promises that, experts say, are rarely kept. These so-called debt settlement companies hold themselves out to the public as being able to make a significant dent in the amount debtors must pay their creditors. These companies are for-profit. They claim to be able to enter into negotiations with the companies to which an individual is in debt to obtain settlements for amounts well below the amount of the debt.
Despite these grand promises, the debt settlement companies are very rarely able to follow through on their claims. Instead, many debtors are left in significantly worse financial positions after using a debt settlement company.
The Disadvantages of Debt Settlement Companies
One of the most harmful practices employed by debt settlement companies involves how they handle the debtor's money while in the process of negotiating a settlement. In most cases, these companies instruct debtors to stop paying any money to their creditors.
Rather, debt settlement companies tell the debtors to pay them each month. The company then sets the money aside, purportedly to pay the creditors once the debts have been settled.
The problem with this system is that these companies are very rarely successful at settling the debts. According to the Federal Trade Commission, fewer than 10 percent of the people who employ debt settlement companies to resolve their debts actually receive the promised results.
Consequently, people end up paying for a service they never receive. In addition, because most people are instructed to stop paying their creditors during the negotiation process, many are left with much larger debts than when they started. When someone stops paying creditors altogether, he or she begins to incur additional fees and, often, the interest rates will rise.
On top of these added fees, some creditors will take increasingly aggressive action against the debtor once he or she is no longer paying anything toward the debt. The creditor will likely implement such tactics as frequent - and at times harassing - debt collection phone calls and may even file a lawsuit against the debtor.
Filing for Bankruptcy Can Be A Favorable Alternative to Resolve Debts
Many people who use debt settlement companies would actually be better served by filing for bankruptcy. Once an individual files for Chapter 7 or Chapter 13 bankruptcy, creditors are automatically prevented from taking any further action to collect on the debts owed - which includes incessant phone calls from debt collectors. The tax implications of filing for bankruptcy are typically better than resolving debts with debt settlement companies, as well.
Determining whether bankruptcy protection is the right option for you is a complicated process. Consulting with a skilled Kentucky bankruptcy attorney will ensure the best option for your circumstances is chosen to restore your financial well-being.