Those in Louisville who have fallen behind on their bills, and are facing ever-mounting late fees, collection notices or even the possibility of lawsuits, may want to pursue debt settlement. Through debt settlement, the creditor agrees to let the debtor pay less than the full amount owed.
There are three general means for pursuing debt settlement. One is through debt settlement companies. With a debt settlement company, the debtor does not pay the creditor directly, but instead pays the debt settlement company, who funnels the funds into a separate financial account.
Once the debt settlement company deems there is sufficient funds in the account to pay off the debt in a lump-sum, such a settlement will be negotiated by the debt settlement company on behalf of the debtor. Debt settlement companies are paid on a percentage basis, which could potentially be costly.
Another option for pursuing a debt settlement, is through a debt settlement attorney. They may either have hourly charges, a flat fee or be paid on a percentage basis.
A third debt settlement option is trying to do it alone by contacting the creditor directly. There might be hardship programs or other reduced payment options, including a one-time lump-sum payment. Keep in mind that no matter how one pursues debt settlement, any amount forgiven may be considered by the Internal Revenue Service as taxable income.
Since debt settlement can potentially be risky, it is important to fully research the options. Consult the Better Business Bureau to see if there have been any complaints lodged against the company.
Also, do not pursue debt settlement with a company that either wants to be paid in advance or that absolutely guarantees that it can settle debts. In addition, if the company's fees are set up not as a percentage of the total amount the debtor owes, but instead as a percentage of the debt that is eliminated, then the company may have more of a vested interest in settling as much debt as possible.
However, some debtors with a significant amount of unsecured debt that they cannot pay back may prefer to file for Chapter 7 bankruptcy. In general, a Chapter 7 bankruptcy can eliminate debt by liquidating the debtor's assets (minus certain exemptions). This allows debtors to wipe their financial slate clean and move forward with a fresh start.
Source: NerdWallet, "How Does Debt Settlement Work?," Bev O'Shea, Feb. 26, 2016