Columbia Bankruptcy Attorney Blog

Debt Settlement Companies can't keep their promises!

2012-02-14T01:12:56Z

Recently, debt settlement companies have been flooding the radio airwaves advertising their superior option of resolving consumer debt. These commercials discuss the dangers of bankruptcy and how credit counselors work for the bank. What these commercials don't tell you is the dangers of their service.

Debt settlement companies promise they can settle your debt for pennies on the dollar. To do this, they want you to stop paying your credit card companies and to pay them instead. They will then create pot of money to negotiate with the creditors.

The problem with this approach is they are going to start with the smallest cards first. This will allow them to settle small debts because of the pool of money. These companies will in fact be successful with a couple small debts.

However, these companies will not be successful with the large debt. For consumers with credit card debts in the excess of $10,000, the debt settlement companies will need at least $2,500, but most likely $4,000.

Thus, if you are paying the debt settlement company $500.00 per month, it's going to take 8 months to get the $4,000. Bad news for the consumer, the credit card company will sue the consumer long before there is enough money for the debt settlement. The big credit card companies do not wait on debt settlement companies. They want a judgment against the consumer and against the consumer's home if he/she owns a house.

Consumers also need to understand that failing to pay a creditor for 7 months is as detrimental to consumers' credit report as a foreclosure or bankruptcy is to the consumers' credit report. Also, when a consumer fails to pay back a debt in full, the creditor will leave a detrimental mark on the consumers' credit report that the consumer failed to pay the debt back in full.

Before considering a debt settlement company, seek the assistance of a lawyer to discuss your debt relief solutions. At Timothy J. Mummert, P.A., we agree that not every consumer should file bankruptcy. We assist consumers with weighing their options and in certain situations, recommend debt settlement. When we recommend debt settlement, we will negotiate with the creditor and protect your rights.

Be careful of debt settlement offers

2012-01-17T03:59:35Z

Many of my clients attempt some type of debt settlement prior to seeking bankruptcy assistance. Unfortunately, my clients learn the truth of the adage that what appears to be too good to be true usually is.

Debt settlement is where a creditor accepts less than full payment and in exchange for a lump sum payment will consider the debt settled in full. Usually, if you can make a lump sum payment of 25% to 50% of the total debt owed, the creditor will consider the debt satisfied. Thus, a $10,000 debt can be settled for $4,000.

However, it's just not that simple:

Creditor will not accept a payment plan. If my clients can afford to make a large lump sum payment, they would be making the minimum payment.
Creditor will issue a 1099 for the foregiven debt. Nothing is free in our society, and neither is debt that is foregiven. The creditor is going to issue a 1099 for the debt that it "foregives". Now, my clients end up owing taxes on the foregiven debt to the IRS and Comptroller of Currency. So the 40 cents on the dollar settlement quickly turns in to 70 cents on the dollar when you consider the tax consequences.
Creditor will probably sell the foregiven debt to a third party to seek repayment. Often, Creditors will not issue a contract outlining the terms of settlement. Without a release / contract from the creditor acknowledging satisfaction of the entire debt, my clients end up being sued by a collection agency for the foregiven debt. It is then my client's word against the word of the collection agency that there was an agreement satisfying the debt. A money judgment can be entered in favor of the collection agency and then 25% of my client's gross wage is garnished to pay the remaining portion of the "forgiven" debt.

If you are considering debt settlement, we recommend you contact us to discuss all of your options first. We can evaluate your situation and give you an unbiased assessment of the best way to proceed. We can also negotiate with the creditors to make sure your rights are protected.

For more information, call us at (410) 766-1100 to schedule an appointment.

Income Taxes Can be Discharged in Chapter 7 Bankruptcy

2012-01-08T00:25:04Z

I recently attended a Continuing Legal Education (CLE) on Offers and Compromises. An Offer and Compromise is a technique that Lawyers and Accountants use to settle past due income taxes with the IRS and Maryland Comptroller of the Currency. What amazed me is that the attorneys teaching the CLE have the same perspective that many of my clients have that bankruptcy is not an option to discharge taxes. While taxes are not automatically dischargeable in Chapter 7, usually if sufficient time passes and the taxes are not the result of evassion and/or fraud, income taxes can be discharged in Chapter 7 Bankruptcy.

If you owe past due income taxes, you need to consult with a lawyer that is experienced in evaluating your tax issues. Generally speaking, an experienced attorney will obtain the client's tax transcripts from the IRS, and after the review of the tax transcript, conduct an analysis of when your taxes will be dischargeable in bankruptcy.

If you are facing levies or wage garnishments from the IRS or Comptroller of Maryland, contact our office to discuss your options in Chapter 7 as well as Offers and Compromises.

Welcome to our Columbia, Maryland, Bankruptcy Law Blog

2011-12-07T11:39:47Z

We established this blog to share stories and information about topics relevant to our practice. Our intent is to highlight local stories, as well as national subject matter, that we think you will find interesting. We will regularly update this blog and encourage you to share your thoughts on these posts.