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Nearly 77% of US households owe a some form of debt. As debt goes into past due status, it begins to accrue interest that is charged on top of the original amount. If the debt goes to a collection agency, additional charges and fees may also accrue.
Both wage and bank garnishments can cause a disruption to the debtor’s finances. Wage garnishments are a percentage taken directly from the debtor’s paycheck, and persist until the obligation is resolved. A bank garnishment can take the entire amount that is owed, as long as the debtor holds accounts at the bank in question.
An Illinois debt settlement attorney at Randolph Law Firm can help debtors negotiate with creditors to pay back the amount owed. For some debts, this may mean a repayment plan, but others might qualify for a debt settlement agreement to resolve the matter in a timely manner.
A debt settlement agreement is made between the debtor and the creditor. It allows the debt to be considered paid in full for a lower amount, usually paid in one lump sum. This lower amount can save the debtor from getting charged additional fees and interest that would have accrued over a longer timeframe. This will also stop any lawsuits the creditor might have filed to collect unpaid balances from a debtor.
The settlement agreement amount is typically in between 20%-80% of the debt owed to the creditor. An experienced debt settlement attorney will usually offer 20%-40%. This leaves room to negotiate and see if the creditor will be interested in accepting the smaller amount. Creditors do not have to accept a settlement offer, and can instead insist that the full amount be paid.
If a lump sum is not within the debtor’s financial means, some settlement agreements can be negotiated into a set amount of payments. Typically, creditors are more interested in lump sum settlements, as that will resolve the outstanding debt in one payment.
Not all debts can be cleared through a debt settlement agreement. Child support arrears and taxes for a government entity are some examples of debts that might have to be paid in full. To be eligible for settlement, some debts, like credit card debt, must be in past due status past a certain date.
Overwhelming debt may be better solved by filing for bankruptcy, even if the debt cannot be discharged. Debt settlement lawyers can review all types of overdue debt and advise if a settlement agreement is the right legal process.
Some debts that qualify for a settlement include:
This is not a comprehensive list of all debts that might be settled for a lower amount. A debt settlement attorney can go over the type of debts that are owed and determine if a settlement is the right approach.
If a debtor is unable to pay a bill when it is due, it can be sent to a collection agency to be collected. When a debt is sent to collections, it may proceed to a suit so that a judgement can be obtained.
If a debt is sent to a collection agency, the debt can still be settled by following these steps:
Once this written agreement has been signed and the debt has been paid, the collection agency cannot attempt to collect the rest of the original amount. The debtor will also avoid any possible garnishments that the collection agency might have issued to collect the overdue debt.
Debt settlements can affect the debtor’s credit score negatively. Creditors will report that a debt has gone unpaid, which goes onto the debtor’s credit report, and will continue to report this until the debt has been paid. When the debt is settled for less than the amount owed, it will go onto the credit report that less than 100% of the original debt has been paid. Debt settlement companies may advise a debtor to stop making payments until a certain amount has been saved. However, this will also impact how a debt is reported.
A credit score may be impacted by a debt settlement if a debtor’s credit score is high. Any unpaid debts may impact a lender’s desire to provide money to a debtor in the future. Unpaid debts, or late payments, might already be reported by the time you seek a settlement. This will lower the debtor’s credit score.
A debt settlement will stay on the debtor’s credit report for seven years. After that time, it will fall off the credit report, raising the debtor’s credit.
A debt settlement agreement can also impact the debtor’s taxes in that fiscal year. The IRS does consider the forgiven amount, the difference between what is owed and what is paid, as income. This amount will need to be reported when filing taxes, and an additional tax burden may need to be paid.
The two most common forms of debt relief include filing for bankruptcy and settling debts. Each type of debt relief will help a debtor wipe away debt in different ways. The types of debts owed may determine which legal remedy will benefit the debtor the most. A bankruptcy law firm can help the debtor decide if a bankruptcy should be filed or if a debt settlement should be negotiated.
A debt settlement will still require the debtor to pay a percentage of the original amount owed, as well as interest and additional fees. When a settlement agreement is reached, the debtor will have to pay the agreed upon amount, usually in a lump sum, by a certain date. Once this has been paid, the debt is considered paid in full and the creditor cannot attempt to collect the rest of the amount.
The type of debt owed will determine whether the debtor should file a chapter 7 or a chapter 13 bankruptcy. A chapter 13 bankruptcy can take years to conclude, but will also allow the debtor to continue making payments on secured debt or child support. A chapter 7 bankruptcy may only take as long as six months, but the debtor will have to prove that he or she is eligible to file under a chapter 7, proving that he or she is unable to pay back the owed amount. Bankruptcy attorneys can advise which documents may be necessary to prove this eligibility.
A debt settlement lawyer can help a debtor to reduce the overall amount he or she will have to pay back. A lawyer can also help if the debt has been sent to a collection agency, or if the creditor has filed a lawsuit against the debtor. This lawsuit can result in a judgement that allows the creditor to pursue further legal actions, such as garnishments. A lawyer can help a debtor in court, which may not be a service that a debt settlement company can offer.
Consulting with an experienced attorney at the Randolph Law Firm can help debtors determine which legal avenue will help resolve their debt. The lawyers at our firm are driven to find a solution that fits each unique financial problem and help clients become debt free.
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