Avoid Bankruptcy By Settling Your Debts

Financial service companies or law firms specializing in debt settlement sometimes would lead you to believe that only they have the ability to help you reduce your debt and get you out of that financial hardship.

But that's not entirely correct, because if you take a closer look at the fine print of their agreement you'll notice that although they will be managing your account and will be talking directly with the creditors, they are however absolutely powerless if and when the creditors decide to file a case against you.

Debt settlement companies are having a field day with today's economic environment of rising unemployment rates, soaring interest on unsecured loans and overextended credit. If you find yourself struggling to make payments and unable to reach anyone that can help you at your creditor's customer service number, it is easy to turn to such a firm for assistance.

These companies will convince you to stop making payments and start sending them money instead. The amount is usually less than your monthly payment to your creditors so you feel a temporary sense of relief. They will then send you an agreement stipulating that you are granting them special power of attorney in communicating with your creditors, asking you to refer collection efforts to them, and that you agree to escrow a portion of the funds that you've been sending them to pay off your accounts once a settlement agreement is finalized.

One or two statements from your creditors may pass before you will receive a collection notice. Collection notice may be either by letter, phone, or both. If you provide the creditors with the contact information of the debt settlement company, or forwarded them a copy of the collection letter, you may be able to avoid further contact from your creditors for the time being.

If the amount to be settled is not that high and you still have some savings or equity on your house left, you might want to listen first to what the collection officer has to say. He would explain that no one at the credit company could do anything about your account until such time you defaulted on your payments and got referred to their company. At this point however, they may be able to give you some reprieve.

If you have a hardship of some kind, many companies will offer to settle for half of your total debt, which by this time includes late fees and additional interest. The settlement amount is likely to be lower than the debt settlement company expects to escrow as payment and there was no hassle of involving another party. It is expected to be a limited time offer however so you better have some financial resources ready to take advantage of this conditional reprieve. Some companies are even willing to decrease the amount further if you are still unable to meet the initial offer, provided you settle it within a limited amount of time.

Some may be able to clear their liabilities with the amount offered for reprieve by the collection companies. Others will decide to go for the help of a debt settlement company which even though it doesn't save your credit standing but may save your nerves from further breakdown. Last option would be to file for bankruptcy if the debt is way too high and you are in a dire financial condition.

Keep in mind if your creditor writes off a significant amount of debt, you will be required to report it as income and pay taxes on it the following year. This is applied regardless of whether you did the work yourself or hired the services of another company.

About the author: Howard Martin is a freelance writer and publishes his expertise in ppi claims and claim back ppi.

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Originally posted 2010-07-29 17:41:59. Republished by Blog Post Promoter

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