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The US consumer has always been in debt, but never to the extent, we were in 2019.

According to several state Federal Reserve Board, we are presently $13.67 trillion in debt.  Cars loans (33% of adults have at least one); student loans (18%); and credit cards (60%) are all UP and on the rise for most Americans in borrowing age.  

The only debt that is DOWN overall nationwide is homeownership which has declined by 25%.

Of course when the debt increases; the delinquency rates will do the same. The more we borrow the more we fall behind.  Delinquency rates are defined as the person's failure to make payment for 90 days or more.  

So how can you as a consumer, especially those with delinquent accounts, address your delinquent debt problem?

One option is a debt settlement

This article is designed to outline the positives and negatives related to debt settlement.

To determine if debt settlement is right for you it is important to understand how the process works.  First, you will stop making all credit card payments. Next every month you will pay into a “settlement” account.  This amount is determined based on how much debt you have to resolve and your monthly disposable income. Every client is different. Each month your credit card debt will go further and further into default.  The balance will continue to grow and your credit will get worse as the months sometimes years tick by. As each month goes by you are saving money each month into an escrow account. This account will continue to grow month after month and the debt settlement company will use this money to settle each account separately.  All settlements are completed and in writing and approved by you.  

Furthermore, you will be then given a 099-C for the balance of the debt that is forgiven.  Also do not forget; the debt settlement company fee. Most companies charge a sizeable fee for this service.   If you decide that debt settlement is right for you to remember that you are paying THREE amounts.  

First is the settlement amount paid to resolve the underlying account. Second is the settlement company fee, and finally, you are paying the IRS for the 1099-C amount. This amount will be paid in the tax year in which such an account is settled.

Let's use an example:

Lets say you have a credit card account with a balance of $25,000.00.  Your debt settlement company negotiates a settlement in the amount of $9,500.00.  You will pay of course the $9,500.00 either up front or over time; then you will be paying the debt settlement company fee(likely $1,500.00 to $3,000.00); finally you will receive a 1099C for $15,000.00 and pay a tax to the IRS and your state government of roughly 28%-$4,340.00.

So for a $25,000.00 dollar debt, you pay a total of $16,840.00.  This is not for the faint of heart. Most debt settlement companies will agree to accept all clients regardless of their individual chances of success.  Debt settlement companies are known for being very sales orientated. They usually fail to disclose all the important aspects of their agreements and usually add disclosure language to the fine print of their agreements.

I would always seek a local experienced debt settlement lawyer that works in your area that does this type of work every day before hiring an out of state debt settlement company.

There are some people who have no choice but to pursue a debt settlement.  Here are a few examples of people who are forced to deal with such a program.

1. The client cannot file bankruptcy because they filed bankruptcy less than 8 years ago. You can only receive a bankruptcy discharge ONCE every 8 years. Always consult with an experienced bankruptcy attorney to determine this;

2. Filing for bankruptcy will force you to give up an asset that you simply cannot lose such as a vacation home or a multifamily home;

3.  Your job prevents you from filing;

4.  You make to much money and you would be forced to pay back all your debt in bankruptcy.

If you are considering a debt settlement always consult with a local and experienced debt settlement attorney.

Matthew T. Desrochers, Esq.