Credit card debt settlement lies and consequences |
By David Pilley on December 13, 2010
.jpg.aspx?width=75&height=75) So you’ve jumped on board with a debt settlement company. I want to focus on two aspects of a settlement that could affect you legally: what the company tells you to do with your bills, and what happens to the amount of the balance you don’t have to pay.
There have been recent lawsuits against companies who claim they can help people get out of debt by settling for half or even less of the amount of debt they have. One of the most common pieces of information that debt settlement companies tell their customers is to stop paying their credit card bills. They tell their customers to pay the company instead of their creditors, and by doing so their creditors will not take any legal action. As a customer, you cannot let yourself be swayed by this tantalizing piece of information. It simply isn’t true.
If you stop paying your credit card bills, you will rack up late fees, your interest rate will go up, and your creditors will be more likely to take you to court. As long as the statute of limitations has not expired, a creditor can sue you for failing to make payments at any time. You could get a judgment placed against you, as well as a wage garnishment, and you could ultimately end up bankrupt.
And it’s not just one debt settlement company feeding customers this lie. An article by Sandra Block, published online for USA Today in June, had some shocking information. The Government Accountability Office (GAO) investigated 20 debt settlement companies and found “several instances in which up to four months of monthly payments were kept by the debt-settlement company before any money was put aside to settle debts.” GAO employees contacted each of the companies posing as potential customers, and 17 of the 20 companies told them to stop making payments. If your debt settlement company tells you to stop paying your bills, look at a different option for your debt issues.
What happens to the money that is forgiven? If you had a bill of $5,000 and you have to pay only $2,000, the forgiven $3,000 does not disappear. The IRS classifies the forgiven amount as part of your income, and you may still be taxed on it. In fact, the only way the forgiven amount of money is not taxed is if you can prove you were insolvent (where your liabilities exceed your assets) before the settlement was finalized. If your debt settlement company also doesn’t tell you this, you won’t be getting the help you really need.
If there’s anything you need to know before planning a settlement, it’s the right information. Before the final plan is made, you need to keep paying your credit card bills. Once the plan is in place, there’s a good possibility you will still be taxed on the forgiven amount of debt. Knowing this information means you are more likely to actually have something settled.
|
Current Rating: 0 (0 ratings)