Pros and Cons of Debt Settlement

If a creditor has sold your debts to a collection agency and you have trouble paying those debts, you might consider debt settlement. Debt settlement involves negotiating a lower payoff to resolve an outstanding debt. You may try to negotiate this yourself or go to a debt settlement agency, or you may want to get help from an experienced Maryland bankruptcy attorney.

Benefits of Debt Settlement

The benefit of debt settlement is that you can satisfy a debt without paying the full amount. Furthermore, after settling a debt, some creditors may agree to delete harmful information from your credit report. This will also stop creditors and collection agencies from taking legal action against you.

Drawbacks to Debt Settlement

Debt settlement has its problems, as well. The truth is that a settled debt will generally appear on your credit report. And your savings from the debt settlement must be reported to the IRS, who will tax it as income. Furthermore, debt settlement companies often charge hefty upfront fees and may even charge you a monthly fee. Once the debt is settled, they may also take a portion of your forgiven debt as a fee.

After paying such extensive fees, you may not be saving much money at all and your credit could be ruined. Therefore, if you want to settle a debt, you may want to negotiate a settlement with the help of an attorney versus an agency. Before you do, you should save enough money to negotiate a settled amount, as you'll likely have to pay in a lump sum.

In some cases, a debt collector may settle a debt for as little as 25% of what you owe. Most collectors; however, will want 40% to 60% of the money that you owe. When a debt has been satisfied, be sure to get a copy of the collector's written agreement, which should include the deletion of negative information from your credit report. Your Maryland bankruptcy attorney can help you look over this agreement before you sign anything.

What about Filing for Bankruptcy?

If your debts are so substantial that you cannot pay them off, then you may want to consider filing for bankruptcy in Maryland. In a bankruptcy proceeding, you may be able to restructure your debts with a creditor. This will allow you to lower your payments and make them over a longer period of time. It will also prevent your creditors from taking collections actions against you.

If you don't know whether to file for bankruptcy in Maryland, a Maryland bankruptcy attorney can help you with your decision.