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Settle A Debt for Less than You Owe? - 11/5/2009 4:35:04 PM
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Fritzpw_Admin
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quote:
Settle A Debt for Less than You Owe?
Joseph Slife - Sound Mind Investing
In a time of widespread job losses and rising credit-card delinquencies, the radio ads are ear-catching: "Settle your outstanding debt for just pennies on the dollar — without filing for bankruptcy!" That's largely true, although "pennies on the dollar" may be stretching things a bit.
But reaching a debt settlement isn't quite as easy as the ads imply. A settlement works only if you qualify and only if everything goes just right.
As many as 2,000 debt-settlement (or debt-negotiation) companies operate in the U.S. They promise, as their ads say, to negotiate with creditors on a debtor's behalf — but not in the same way that nonprofit credit-counseling firms do. Credit counselors work with creditors to produce repayment plans with reduced interest rates and lengthened payback terms.
In contrast, the stated goal of debt-settlement companies is to persuade creditors to accept a one-time discounted lump-sum payment in fulfillment of a debt. (Generally, debt-settlement companies deal only with unsecured debts, such as credit cards, personal loans, and medical bills.)
Most creditors, however, won't consider such a settlement until a debtor is at least three-to-six months behind on payments. For clients not quite that bad off yet, many debt-settlement firms offer this simple strategy: stop making payments. As the debtor falls farther behind (so the argument goes), the creditor will be more willing to cut a deal.
Rather than making monthly payments to the creditor, the debtor makes them to the debt-settlement firm. That money — minus (sometimes hefty) fees — goes into an escrow account, for use when a lump-sum settlement deal is ultimately reached.
Read the rest of Settle A Debt for Less than You Owe?
Settle a debt for less than you owe?
Sounds like a nice idea but does it work? Have you tried it?
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Fred "Fritz" Alberti
Director of Social Media
fritz@salemwebnetwork.com
Read today's Bible verse from my favorite online Bible
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RE: Settle A Debt for Less than You Owe? - 11/5/2009 5:59:22 PM
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Random
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Don't forget, there's a good chance you will owe taxes on the forgiven balance.
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RE: Settle A Debt for Less than You Owe? - 11/5/2009 6:06:47 PM
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Mrs.Wifey
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We settled once. I would not do it again.
We did not end up owing taxes on the forgiven balance but it did impact DH's credit.
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Ryanne- trying hard to be my husband's girlfriend and my daughter's mother.
I'll keep my guns, freedom, and money- you can keep "the change."
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RE: Settle A Debt for Less than You Owe? - 11/5/2009 6:18:57 PM
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Mollymouser
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As Liz Pulliam Weston (MSN Money columnist notes), there are many risks with Debt Settlement Companies:
(excerpts from article)
The dangers are many, including:
Fraud. Some companies offering debt settlement are fly-by-night scams, eager to take big upfront fees and then disappear. Others are too inept or inexperienced to negotiate effective deals.
Credit score damage. Failing to pay your bills on time will trash your credit scores. The better your scores, the greater the toll. Settling a debt for less than what you owe can do additional damage.
Lawsuits and wage garnishment. Creditors increasingly are using debt collection law firms that are quick to file lawsuits when borrowers default. In fact, some creditors are so resistant to working with debt settlement companies that they immediately "go legal," or file a lawsuit against a debtor as soon as they are contacted by his or her debt-settlement company.
Lack of regulation. The federal government doesn't regulate debt-settlement companies, although the Federal Trade Commission is considering imposing some rules. Few states regulate the industry, and "where those states are, the debt-settlement companies aren't," Welsh said. So -- for now at least -- it's completely "buyer beware."
Taxes. The difference between what you owe and what you pay in a settlement typically is considered taxable income by the IRS. So if you're in the 25% federal tax bracket, you could owe $2,500 for every $10,000 in debt that's forgiven.
Cost. Debt settlement doesn't come cheap. Some companies charge 14% to 18% of the total face value of the debt you want settled, while others require a large percentage of the amount they actually settle for you.
Time. In addition to not being cheap, debt settlement typically isn't fast.
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RE: Settle A Debt for Less than You Owe? - 11/5/2009 6:40:25 PM
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Mrs.Wifey
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Oh, we didn't use a debt settlement company, we worked directly with the company to whom we owed money.
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Ryanne- trying hard to be my husband's girlfriend and my daughter's mother.
I'll keep my guns, freedom, and money- you can keep "the change."
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RE: Settle A Debt for Less than You Owe? - 11/5/2009 7:37:00 PM
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Miss Giggles
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I'm hoping not to get to that point. I'm in that gray zone where I haven't missed a payment but now they want to raise rates on those who have paid on time and they don't won't settle unless you are behind.
Febraruy can't come soon enough.
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RE: Settle A Debt for Less than You Owe? - 11/5/2009 8:12:21 PM
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clydewolf
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The rules for exempting the forgiven amount from your income are many.
IRS Pub 4681, Canceled Debts, Forclosures, Reposessions and Abandonments, has more information: http://www.irs.gov/pub/irs-pdf/p4681.pdf
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RE: Settle A Debt for Less than You Owe? - 11/6/2009 7:17:15 PM
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Katie51
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You can do this on your own, in some cases. Credit cards....stop paying if you cant afford it. (hey i heard it from Dave Ramsey..:o)...they wont deal if you make payments at all! Just stop......some time later they will call and you can offer them a settlement (of course this only works if you have something to offer them ). I have found that you can do this with medical bills. I had some that I simply could not pay. I did not have the money. After a time they sent me an offer of a settlement. I wanted to take it but they would only accept IF i paid a lump sum. I couldnt do that so I never paid it. It was eventually written off by the hospital . I hate this but I had no choice. I also did this with a lawyer. I owed him a HUGE amount. I offered him a cash settlement. he quickly agreed to it, as I was making payments and they were low. Saved me a LOT of money.
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RE: Settle A Debt for Less than You Owe? - 11/6/2009 8:38:05 PM
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GregandJenny
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quote:
Credit cards....stop paying if you cant afford it. (hey i heard it from Dave Ramsey..:o)...they wont deal if you make payments at all!
Is this scriptural?
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It does not have to be well with my circumstance to be well with my soul!
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RE: Settle A Debt for Less than You Owe? - 11/7/2009 10:18:21 AM
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mrtigger
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quote:
ORIGINAL: GregandJenny
quote:
Credit cards....stop paying if you cant afford it. (hey i heard it from Dave Ramsey..:o)...they wont deal if you make payments at all!
Is this scriptural?
Wilfully not paying back a debt owed is morally the same as theft. Our society allows (and even encourages) this form of theft but that does not make it right.
(I do have understanding and compassion for people who have unexpected medical bills (or something like that) and can't pay back debts because of that. )
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mr tigger
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RE: Settle A Debt for Less than You Owe? - 11/7/2009 10:34:52 AM
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Katie51
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quote:
ORIGINAL: mrtigger
quote:
ORIGINAL: GregandJenny
quote:
Credit cards....stop paying if you cant afford it. (hey i heard it from Dave Ramsey..:o)...they wont deal if you make payments at all!
Is this scriptural?
Wilfully not paying back a debt owed is morally the same as theft. Our society allows (and even encourages) this form of theft but that does not make it right.
(I do have understanding and compassion for people who have unexpected medical bills (or something like that) and can't pay back debts because of that. )
I did not say willfully. If you can pay it of course you should. We are of course talking about situations where people CANT pay them. And they are unethical for refusing to work with people who want to pay SOMETHING but they force them to just quit paying before they will even talk to you.
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RE: Settle A Debt for Less than You Owe? - 11/7/2009 11:44:36 AM
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GregandJenny
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quote:
s it "scriptural" for those companies to stick it to people which they do on a regular basis? Some people cant pay their bills through no fault of their own (job loss, illness etc) Credit card companies are very unethical. If you cant pay, you cant pay!
The difference is simple:
The companies are not christian, you are.
The borrower is servant to the lender.
I understand the fact of negotiating med bills you don't know what they will be usually before you get them. To me credit cards are a whole different game.
G
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It does not have to be well with my circumstance to be well with my soul!
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RE: Settle A Debt for Less than You Owe? - 11/7/2009 7:33:12 PM
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Random
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quote:
ORIGINAL: Katie51
i'm a servant to the lender? as a a believer in Jesus I am servant to no one but Him. You dont seem to understand what we are talking about. No offence.
Clearly something has gotten lost in translation. Katie, Proverbs 22:7 says "The rich rule over the poor, and the borrower is servant to the lender." So, he was giving you a quote directly from the Bible and for some reason you disagreed with him and complained that he doesn't know what he is talking about. I think you are the one who is misunderstanding.
That verse is an example of God showing that debt is dangerous.
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RE: Settle A Debt for Less than You Owe? - 11/7/2009 9:30:30 PM
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SurpassingPeace
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Not only is it unscriptural and unethical, not all credit card companies are going to let you walk away. Many will simply sue you. Each month you don't pay, the fees and interest will continue to add up until judgment. After judgement, the interest will continue to accrue. Some day you will try to sell your house or refinance and up will pop a lien. Without bankruptcy, debt will follow you around for years and years. Depending on your state your wages can be garnished and/or your accounts seized.
Many people think, oh when the judge hears my side of the story or if I tell the judge I can't pay then he will side with me. Judges have heard it all before. Just because you can't pay a debt does not excuse you from one.
I must echo the sentiment that if you think credit card companies are evil and unethical, then don't use them.
Medical bills are different. Most are willing to work out payment plans that are reasonable and will allow you to take care of your responsibilities.
And your debt is your responsibility.
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Karen
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RE: Settle A Debt for Less than You Owe? - 11/7/2009 9:39:15 PM
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GregandJenny
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quote:
i'm a servant to the lender? as a a believer in Jesus I am servant to no one but Him. You dont seem to understand what we are talking about. No offence.
Oh i do understand. I just tell you what the scripture says, and if you want to argue with that go ahead.
I agree 100% with Harvie, if people don't like credit cards or a particular company don't use them. Those people that are not paying their bills are causing the rest of us that are paying our bills to have to pay more. This mindset of stop paying is what is causing credit card companies to literally punish everyone. If you owe money pay it back. if you borrow money it is really on the terms of the lender.
Why is it that Christians now are thinking and operating like the rest of the world, especially when it comes to finances?
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It does not have to be well with my circumstance to be well with my soul!
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RE: Settle A Debt for Less than You Owe? - 11/7/2009 10:07:21 PM
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SurpassingPeace
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GregandJenny, I don't know why Christians are behaving as the rest of the world. There seems to be a lack of personal responsibility. It's not my fault, its the mortgage company, the credit card company, the tv ads made me do it. The idea that I can charge up whatever I like and if I don't want to pay it I won't has greatly contributed to the financial crisis we are in.
I know people have problems such as a loss of job or medical issues that cause financial hardship. But often the financial harships are caused by an instant gratification mentality. I want it now so I will just charge it even though I know I won't have the money anytime soon. It always ends in diaster.
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Karen
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RE: Settle A Debt for Less than You Owe? - 11/7/2009 10:30:02 PM
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GregandJenny
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quote:
Is it instant gratification in my friends situation, who used it to run up $10,000 so they could have the fun experience of chemotherapy when her husband got cancer? They had no insurance.
then I would say try to make a deal with the Dr, but if you are putting the on a CC KNOWING you will not be able to meet your obligations, why should the CC company be penalized?
G
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It does not have to be well with my circumstance to be well with my soul!
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RE: Settle A Debt for Less than You Owe? - 11/7/2009 10:33:13 PM
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Katie51
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quote:
ORIGINAL: SurpassingPeace
Not only is it unscriptural and unethical, not all credit card companies are going to let you walk away. Many will simply sue you. Each month you don't pay, the fees and interest will continue to add up until judgment. After judgement, the interest will continue to accrue. Some day you will try to sell your house or refinance and up will pop a lien. Without bankruptcy, debt will follow you around for years and years. Depending on your state your wages can be garnished and/or your accounts seized.
Many people think, oh when the judge hears my side of the story or if I tell the judge I can't pay then he will side with me. Judges have heard it all before. Just because you can't pay a debt does not excuse you from one.
I must echo the sentiment that if you think credit card companies are evil and unethical, then don't use them.
Medical bills are different. Most are willing to work out payment plans that are reasonable and will allow you to take care of your responsibilities.
And your debt is your responsibility.
I dont use them nor do i owe any debt to them, by the grace of God. However if you fall behind from job loss, illness etc and cant pay , they can and will bargain with you. If you offer them $3000 for a $10,000 debt they will often take it knowing they had better, for they will get nothing if they refuse. And no one goes to debtors prison. I dont think you live in the US, or else you misunderstand the laws here. They cannot put a lien on your house for credit card debt. I think its very responsible and Godly to try to work out a deal if you are in debt over your head. If you think they are willing to work out payment plans you have not dealt with one lately. They dont give a rats patootie.
< Message edited by Katie51 -- 11/7/2009 11:14:07 PM >
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RE: Settle A Debt for Less than You Owe? - 11/7/2009 10:40:37 PM
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Katie51
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quote:
ORIGINAL: GregandJenny
quote:
Is it instant gratification in my friends situation, who used it to run up $10,000 so they could have the fun experience of chemotherapy when her husband got cancer? They had no insurance.
then I would say try to make a deal with the Dr, but if you are putting the on a CC KNOWING you will not be able to meet your obligations, why should the CC company be penalized?
G
Your compassion is sadly lacking. He was a very sick man and they were trying to keep him alive.
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RE: Settle A Debt for Less than You Owe? - 11/7/2009 10:46:43 PM
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GregandJenny
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You don't know anything about my compassion. I simply asked a question and made a statement. and at the end of the day, if yuo borrow money and know you can't pay it back, it's theft. Desperate situations should not cause us to go against what the word of God clearly teaches.
Can you give any scriptural basis to the following statement:
quote:
I think its very responsible and Godly to try to work out a deal if you are in debt over your head. If you think they are willing to work out payment plans you have not dealt with one lately. They dont give a rats patootie.
I see alot of people make statements about what is responsible and true and yet I see no scripture to back it up. It concerns me.
_____________________________
It does not have to be well with my circumstance to be well with my soul!
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RE: Settle A Debt for Less than You Owe? - 11/7/2009 11:10:45 PM
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Katie51
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Instead of harshly judging people who are in debt when you know nothing about their circumstances, maybe you should do what a Christian relative did for me. I had , at one time, about $4000 cc debt. I had used it to hire a lawyer to get me out of my abusive marriage. My relative paid it off for me, no strings attached, with great love, because they knew that I could not. I love them for it and I thank God who has always provided for my needs.
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RE: Settle A Debt for Less than You Owe? - 11/8/2009 7:29:17 AM
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SurpassingPeace
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Katie51, actually I live in the US and I have more than a passing familiarity with debt laws. My husband is an attorney that deals with this and I was a paralegal before I had children. More and more credit card companies are sending bad debt to law firms, sometimes they will take a lump sum offer, it is becoming more common to settle at 80%. If you go that way, your credit will be marred. If you do not, they will take a judgment against you. Depending on your state, if you then do not pay they will garnish you wages and/or accounts and put a lien on your house. In some states the unpaid judgment will expire in 10 years. What is then filed is a Revival of Judgment which makes the judgment valid for another 10 years. This can and will follow you around. If someday you do get on your financial feet again and try to buy a house, this will affect you. If you own a house, this can actually go until you die and then the lien will go against your estate. Remeber, all this time interest of at least 9% is accruing every single day.
It is not a lack of compassion, it is fact. This is what happens every single day. Not understanding the laws or thinking that nothing can happen to you is not an excuse in the eyes of the law. Many people think, they can't do that this is the US! That thinking finally changes when the first ganishment payment takes almost half of their paycheck.
I do not see how GregandJenny is lacking compassion. For someone to put any debt on a credit card that they know they will be unable to pay is not ethical. The credit card company loaned the money in good faith. Medical bills are hard. It is terrible to see someone bowed under with medical debt. Again, hospitals are usually very willing to make payment arrangements.
Living within your means, saving for emergencies, and delaying gratification would eliminate most of the financial stress people are under today.
_____________________________
Karen
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