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Debt Consolidation or Debt Settlement

Debt Consolidation or Debt Settlement

Debt Consolidation

Debt Consolidation or Debt Settlement

Trust the attorneys at Pillar Law Group to consolidate or settle your debt.

As licensed California attorneys, we have a legal and ethical obligation to represent your best interest, not the creditors.  We will not just get you a “deal” so we can close your file.  We will get you the best possible settlement possible.  Most debt settlement companies have non-attorney salespeople working on your file and have access to your personal and sensitive information.  Debt settlement companies are just that-companies with a profit motive.  Their motive is to maximize their profit by closing your case fast-not getting you the best possible outcome.  On the other hand, Pillar Law Group’s motivation is to give the best possible customer service and to safeguard your confidential information.  We know that when we do our best, we will be rewarded with your confidence in referring others to us.


Now a little about debt consolidation and settlement.  I am sure you've heard those ads on the radio announcing the "Obama bail-out program" for the regular people.  These companies claim to be able to "bail you out" of your debts under  a new law passed under the recent federal bail-out program.  What they don't tell you is that for a not so small fee, they will help you do what you can already do yourself:  settle your debt with your creditors.  Debt Settlement is essentially an agreement you can reach with your creditors to pay-off less than 100% of your debt.  This way, the creditor will get paid back a percentage of their debt and report the rest as a loss and stop collection efforts against you.  IRS regulations require that the creditor report the forgiven amount of your debt by issuing a 1099.  That means any amount over $600 which is forgiven, will be reported as income to the IRS and you will have to pay income taxes on it.

Another thing these debt settlement companies don't tell you is that you will continue to receive collection calls, letters and even lawsuits even while you are paying them to settle your debts.  I recently had a client come in for a bankruptcy consultation who was in a debt settlement plan.  She was paying her monthly fees to the settlement company and thought that she was going to get rid of all the collection calls.  She received a summons and a complaint from one of her creditors even though she was in a debt settlement plan with them.  That's right!  You can get sued and your wages can get garnished and your bank account can be levied even if you are in the process of settling your account.  Another thing these so called debt settlement companies don't tell you is that you will be required not only to pay them a fee, but to deposit a certain amount of money each month in their bank account or trust account for a period of time.  When your balance reaches a certain amount, they will then negotiate with the creditor to pay a lump-sum of the money you have saved in their account and settle the debt.  You don't need a debt settlement company to hold on to your money and pay it to a credit card company.  You can already to that yourself.

Bankruptcy is always an option.  

Now the question for you is whether you should settle your debt or file a bankruptcy?  For most people, that is a moral questions.  Some people have a moral issue with not re-paying their debt.  That is a valid moral dilemma.  For others, the question is whether to pay their debt or be able to pay their rent, expenses, health insurance, car payments....A lot of my clients think that a bankruptcy on their credit record will look worst than a debt settlement.  That is wrong.  The fact is that by the time creditors are willing to settle the debt with you, your credit has already taken a hit.  Credit card companies will not settle their debt with you unless you are delinquent at least for 90 days.  Face it, why would a credit card company offer a settlement if you are current with your payments?  Even if you settle your debt, your credit won't improve for at least 7 years.  Considering that your credit will get ruined no matter if you settle or not, and that you might even get sued while you are attempting to settle the debt and that you will have to pay income taxes on anything forgiven in excess of $600, a bankruptcy is probably a better option.

First of all, a bankruptcy is definitely cheaper than debt settlement.  You pay an attorney a flat fee for filing the bankruptcy.  WIth debt settlement, you have to pay a chunk of each credit card debt to the creditor.  Second, when you file bankruptcy, all collection efforts (collection calls, lawsuits, levies, garnishments) will end.  And finally, debts that are discharged in bankruptcy are not considered income and you will not have to pay income taxes come April 15.

So, the next time you hear the radio or TV commercials offering you the "bail-out program under the Obama plan", I suggest you think about whether these for-profit companies are thinking of helping you or helping themselves.  If you are thinking about filing a bankruptcy, please call or email us for a consultation where we will go over all your questions and options with you so you can make the right choice.