Debt Settlement/Bankruptcy Workouts

       Even though I have helped many people rid themselves of debt through Chapter 7 and Chapter 13 bankruptcy, for those who want to avoid bankruptcy Halcomb Singler can also help through debt settlements, often called creditor workouts.  A creditor workout is really just a negotiation with the creditors of an individual or couple to try to settle the debts for less than is owed.  A creditor workout typically works best if there is a pot of money available from which the person to pay his or her creditors in one lump sum.  However, creditor workouts can also be set up as payment arrangements over a period of time. For example, a creditor could agree to take $200.00 per month on a credit card when the normal monthly payment was $500.00.  The terms of these agreements can be anything, so long as the creditor agrees.

       However, creditors (typically credit card companies) are not usually just going to agree that you be able to lop $300.00 off of your monthly bill.  Normally a credit card company won't entertain the idea of reduced payments or accepting a lump sum settlement unless you are behind on your payments.  If you think about it, this makes sense because the credit card company wants to make sure that if they are going to accept less than is owed that you at least have a ding on your credit report.  This shows credit card companies that you are really in a financial bind and not able to pay instead of simply attempting to get a discount on your bill.

       So, one of the downsides of debt settlement is that your credit score will be affected negatively.  Notice I said "will," not might.  Your credit card will report the number of months late that you are on your payments.  If a settlement is accepted your credit report will also show that you did not pay your full obligation.  Often a credit report might say "paid in satisfaction," or something similar.

      Another downside of debt settlement is that the IRS has determined that debt forgiven is taxable income.  So, if you were to settle a debt of $5,000.00 for $4,000.00 you could expect for a 1099 to show up in the mail the following January that would need to be claimed as income on your taxes.

     The clear requirement for any individual or couple thinking about a creditor workout is that some funds must be available to either pay lump sum settlements or to pay the creditor(s) in a payment arrangement.  It is not unusual that a relative is willing to gift a person struggling with debt a set amount of money to settle their debts.  However, debt settlement is not an option for people who are barely able to make ends meet and who do not have any pot of money available for them to pay creditors.  These folks are likely better candidates for bankruptcy in either a Chapter 7 or Chapter 13.

     I am always willing to meet with individuals who are lying awake at night worrying about debt.  It is not uncommon for people to feel better after having spoken to me just because I am able to give them information on bankruptcy, debt settlement or not filing bankruptcy and which option I believe they should try.  If you have questions about bankruptcy or debt please post your question on this blog.  I am always looking for topics to write about.  If you are in Carmel, Fishers, Northern Indianapolis, Westfield, Noblesville, Tipton or Cicero and you want to come in to my office in Carmel, Indiana please either click here or give me a call at 317-575-8222.  We will set an appointment to meet and there will be no fee for this consultation.

Halcomb Singler, LLP, is a debt relief agency.  It helps people file for bankruptcy under the bankruptcy code.  No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so.  The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.