Debt Settlement is Bad News For the Unemployed

Debt Settlement For Unemployed? Not a Good Idea

Millions of Americans who have large debt loads are unemployed; but unfortunately for them the bills are still coming.  If you’ve been watching TV, listening to the radio or just browsing the internet, you will see advertisements for debt settlement companies that promise to solve debt problems by settling debt for “pennies on the dollar.”  However, such debt settlement schemes are usually bad news, especially for the unemployed.

Here’s why:

  1. Unemployed debtors don’t have steady income or a lump sum of cash to pay debt settlement offers.  And even if a debtor does have a lump sum of cash it may be unwise to use it for debt repayment because they do not know how long they will be unemployed or if/when they will have an emergency that requires the influx of cash.  Using their savings to repay debt could in turn actually worsen their financial condition by making them once again incur debt when an emergency strikes.
  2. Many debt settlement companies will set up monthly payments that often take up a large chunk of the debtor’s income.  Unemployed individuals don’t make good candidates for these monthly repayment programs because they do not have a job that provides steady income.  However, there are some unscrupulous debt settlement companies that will try to pressure debtors into using their unemployment benefits check to repay creditors.  Don’t do it!  Creditors cannot legally seize your unemployment benefits check, so don’t voluntarily hand it over.
  3. Debt settlement rarely works out well for debtors; but when it does work it is really designed for people who have cash, a steady flow of income and who are able to effectively strategize sizable and significant settlements with all of their creditors.  For an unemployed debtor, debt settlement is not a wise choice because they usually don’t have cash or income.  Bankruptcy would be a better option. Because unemployed debtors can easily prove that they are in fact destitute, qualifying for a Chapter 7 bankruptcy discharge of their unsecured debts would be an easier and more feasible task than debt settlement.