How Risky is Debt Settlement?

Personal injury lawyers often tell injured clients that the “skate at your own risk” signs at skating rinks and “swim at your own risk” signs at swimming pools are wishful thinking; even though the sign is present, you can still file a premises liability lawsuit if you get injured in a preventable accident at a recreational venue where you paid admission. Likewise, an element of wishful thinking is involved whenever a lender lends money.  When lenders borrow money, they can never be sure that the borrower will be able to repay the full amount. 

One consequence of this is that lenders have the right to charge late fees, sometimes to disastrous effect. Another consequence is that borrowers have the right to file for bankruptcy protection if they cannot repay their debts rather than face financial ruin at the hands of the creditor. Against this backdrop, it makes sense that borrowers and creditors often negotiate to settle the debt for less than the sticker price of what the borrower owes; sometimes, it is as simple as waiving some fees and accrued interest, but in other cases, it involves forgiving some of the outstanding principal amounts. If you are considering settling your debt as a means of avoiding a bankruptcy filing, contact an Oakland lawsuits, collections, and creditor harassment lawyer.

Is Debt Settlement the Poor Man’s Chapter 13 Bankruptcy?

In a Chapter 13 bankruptcy case, the court oversees negotiations with your creditors about settling your eligible debts for a lesser amount than you currently owe; then, it sets up a plan for you to pay that amount in installments over the course of several years, and at the end, it discharges your debts. The risk to the borrower is that if you stop making payments, the court has the right to convert your case to Chapter 7, such that you risk the court liquidating your assets.

In debt settlement, a debt settlement company fulfills a similar function to the role of the bankruptcy trustee in a Chapter 13 bankruptcy case.  After signing an agreement, you make payments to the debt settlement company, and it places the money in an escrow account.  At the end of the agreed-upon period, the debt settlement company settles your debts with the creditors.

Debt Settlement is Not a “Get Out of Debt Free” Card

As with a bankruptcy case, debt settlement through a debt settlement company does not bring immediate relief, and it does not bring relief at all unless you keep up with the payments for several years. Some debt settlement companies are more reputable than others; the worst are downright shady, but there is always a risk that the debt settlement will not work the way the companies want it to. It is best to consult a debt relief lawyer before you agree to debt settlement through a debt settlement company.

Contact the Law Office of Melanie Tavare About Improving Your Credit Score

A debt relief lawyer can help you if you are considering debt settlement as a way to prevent filing for bankruptcy. Contact the Law Office of Melanie Tavare in Oakland, California, or call (510)255-4646 for a case evaluation.