Debt Settlement occurs when a creditor agrees to allow a borrower pay a less amount than initially agreed upon. However, this action damages your credit score and makes you a less favorable future loan candidate. If you are thinking about settling a debt, do not wait until you are six months delinquent as this makes you appear completely not trustworthy. Just because a creditor marks your account as “charged- off”, it does not mean you no longer owe the creditor. This is very different from written off, where the debt is no longer important.
The only way a settlement can occur is if you, the debtor (with the help of an attorney) can prove to the creditors that you cannot possibly pay off the debt without a settlement. The creditor will acquire information regarding your income, expenses, checking accounts, savings accounts, employment, credit history, etc. Then, once the creditor determines that you in fact need a settlement otherwise they will never see their money, you will be granted a settlement. You must be aware of the fact that any time a settlement for which debt forgiveness is greater than $600, the money owed becomes taxable. Thus, do not expect a tax return if you still owe someone under a settlement.
If possible- try to manage your debt before settling, as a well thought out debt management plan will be more beneficial for you in the long run. Not only will you be able to retain your high credit score, but you will also learn a new way of managing your finances.
Fridlin & Associates, P.C.
1517 Voorhies Ave, Suite 4
Brooklyn, NY 11235