Newark Consumer Law Firm

Are Credit Settlement Companies A Good Deal?

Many of you may be wondering “Are credit settlement companies a good deal?” Maybe you received a letter like the one pictured below. Letters like this one arrive in your mailbox looking very official so you will be compelled to open them. And, once opened, the notice takes on a “government-issued” look – something you can feel safe about and shouldn’t ignore. This organization calls itself the “New Jersey Assistance Center” “RE: Dept. of the Treasury Publication 4681” printed in bold on the top line.

But, what are these companies actually offering? And, are they a good deal? Yes, that’s what these letters are: very aggressive sales offerings. Let’s look closely at the offer below. This one is not much different than many of the others being sent to people with credit issues.

First, how did you even get this letter? Probably because the company has purchased a list of names of people with high credit balances and/or late payments on debts found on their credit reports.

Once opened, the letter pictured below starts off in bold on the top line “RE: Dept. of the Treasury Publication 4681.” A Google search of Dept of Treasury Pub 4681 brings one to a page at the IRS. See IRS Publication 4681. The letter directs us to the “insolvency” section of publication 4681 which states in a simplified form that if you are deemed insolvent, any debt canceled by a credit card company or another creditor, may not be included in your taxable income. There is a worksheet to determine whether or not one is insolvent.

Next, the letter states that the person the letter is addressed to owes $48,928 and that the credit settlement company can settle the debt for $19,571. They base this claim on “past results.”

Then, the hard sales pitch really ramps up as the letter states “your creditors have taken action by increasing your interest rates.” And, that the company can help you “avoid any pending legal action from your creditors such as wage garnishment, levy of funds from bank accounts, or liens placed against the property.”

All of this seemingly for no charge. “The letter states New Jersey Assistance Center does not charge a fee for its services.” Does that seem realistic to you?

Of course, there is a deadline which is less than one month from the date the letter was sent to get you to call fast.

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Here are some questions I would want to have answers to:

  1. While the publication referred to is legitimate, what does it really have to do with your credit problems?
  2. What guarantees are there to back up the claim of settling the debt for $19,571 which is more than half of the claimed balance?
  3. How long does it take?
  4. Can creditors still sue or take other collection actions while the company is settling your debts?
  5. What appears on my credit record after these debts are settled?
  6. Is there really no fee for your service? That seems unrealistic.

Here are what I believe would be answers to these questions:

  1. The publication lets consumers know that if they do indeed settle debts, they won’t be taxed on the forgiven amount if they can be deemed insolvent.
  2. There are no guarantees that we can settle your debts for his amount or any amount. We will try our best.
  3. We can negotiate with the creditors in a matter of weeks but you may be paying the agreed amounts for two or three years
  4. During the time you are repaying, nothing will stop the creditors from taking other action. and, if you miss a payment, or stop paying completely, the creditors have every right to come after you for the original balance and unpaid interest at their very high rates usually +/- 30% plus late fees, lawyers fees. And, they can get a judgment against you and garnishment of your wages, levy your bank account, or take other actions to collect their outstanding debts.
  5. Your credit will be affected negatively with notations about a settlement.
  6. These companies ARE paid a fee for their services. Sometimes they are paid a commission on how much they save you. These fees are paid as part of your settlement payment to the credit card company.

Are these credit settlement companies a good deal?

For most people, the answer is simply no. While I can’t say these companies aren’t helping to negotiate the debts of some, they aren’t doing anything you can’t do yourself. And, most importantly, they are not utilizing any of the protections available to an individual through the bankruptcy laws. Most importantly – the automatic stay in bankruptcy.

The bankruptcy laws guarantee that you will be protected from all collection actions by any creditor. Whether you qualify for a Chapter 7 bankruptcy or a Chapter 13 bankruptcy, the bankruptcy laws legitimately allow an individual to discharge certain debts, re-negotiate others, and in all cases, you will not have to pay tax on any debts forgiven even if you are not deemed insolvent.

Bankruptcy is a very smart choice for most individuals who are having trouble with too much debt. It is a government-sanctioned program designed to help you while giving you every protection available under the law.

Before you sign-up with one of these companies, call to investigate all of your options under the bankruptcy laws.

Call today: (862) 305-4901.

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