How does debt settlement work? Settling debt requires skillful negotiation with the creditor.  Often, to get the best settlement, you will need to be able to pay a lump sum. Some creditors will accept long term payment plans, but in those instances, the creditor will want a higher overall amount in order to account for the risk of accepting payments long term.

Creditors are not inclined to work with you if you haven't defaulted. They figure that since you seem to be making your minimum payments just fine, there is no reason to cut you a break.  The exception may be if you are elderly and on social security, or you lost your job and will not be returning to the work place due to illness or injury. If you can show that your circumstances have just recently changed and that your situation is likely to persist, they may be willing to negotiate before you have actually defaulted.

In cases where you have long defaulted, the longer you default, the better the deal you are likely to get. Even if the creditor has sued you, or even if they have obtained a judgment and are garnishing your wages, a settlement can still generally be reached. I have personally negotiated settlements on the eve of trial, and also after a judgment has been entered.

One thing to keep in mind is that any sums forgiven in a debt settlement will result in a tax consequence for that year. The IRS considers this to be "cancellation of debt" income, and the creditor will send you a 1099 for that tax year.  You will need to consult with a CPA to see whether you qualify for an exception to this tax. If you are insolvent under the IRS definition of insolvency, you might qualify for an exception and not have to pay the tax.  Be sure to ask your CPA about this.

Keep track of all your communications with any creditor or collection agency. If they are abusive to you in any way, including threatening you on the phone, or calling your friends and neighbors and disclosing that you allegedly owe money, you may have rights against them and may be entitled to damages.

Be aware that there are a lot of scams out there these days where the alleged creditor will call and threaten you will jail if you don't pay up. This is not how collection works. You will not go to jail for not paying your credit card bill. If you get a phone call of this type, including from someone claiming to be from the IRS, please take down their information and call me immediately. This is a scam. The IRS does not work this way. I have had several vulnerable clients be frightened into paying money to these horrible fraudsters. Do not be afraid of such people. They do not have the power to put you in jail. They are scammers.

Be careful of "debt settlement" companies or "debt consolidation" companies.  I have had at least two clients who have paid in excess of $15,000 each to such companies, only to have those companies close down and run off with the money without settling any of the debts.

At Roark Law Offices, I take debt settlement cases on a contingency fee basis. You will pay nothing to me unless I successfully settle a debt to your satisfaction.  (If the creditor has already sued you and I need to represent you in the lawsuit, you will have to pay court costs such as filing fees.)

Call me at 208-536-3638 to inquire about my debt settlement services.