Four Reasons Why Debt Settlement May Be A Raw DealUnemployment has remained elevated, salaries stagnant and debts continue to pile high.  The blood and chaos from the current financial environment has brought out the vultures and those vultures come by many names; but today we’re going to talk about one of them — debt settlement companies.  Okay, let’s clarify, not every debt settlement company is unscrupulous, unethical or useless but many are engaging in tactics that deceive and mislead debtors about what debt settlement is and what powers debt settlement companies truly have.

Debt settlement may be a raw deal for many debtors and here’s why:

  1. Not every debt can be “settled” by a debt settlement company.  Traffic tickets, child support and alimony are just a few types of debts that debt settlement companies cannot negotiate for “pennies on a dollar.”
  2. Not every company will work with a debt settlement firm.  This is a fact debt settlement companies will never bring to the attention of debtors and many debtors find out that hard way that a growing number of creditors refuse to negotiate with debt settlement companies.
  3. Creditors are NOT required to settle any debt with individuals who legitimately owe them money.  If a creditor chooses, they can pursue the debtor for every last penny that he/she owes until they either pay or file bankruptcy.  Not even the statute of limitations can stop a creditor from pursuing a debtor for payment.  The expiration of the statue of limitation only stops creditors from filing a lawsuit in their efforts to collect on the debt.
  4. Forgiven debt is treated as income by the IRS, unless the debt was forgiven in bankruptcy.  That means if a debt settlement company was somehow miraculously able to settle your $30,000 debt for $15,000, you would need to pay taxes to the IRS on the forgiven debt.  On the other hand, if that same $30,000 debt was forgiven in bankruptcy or even if part of it was forgiven, you would not need to pay any taxes on the forgiven portion.