Gary Armstrong


Added: 10/05/2009


At every turn, it seems, is another advertisement from a company offering to settle your credit card debts for pennies on the dollar. If you are considering hiring a debt settlement company, here are some things you need to know:

  1. Some of your credit card companies will likely refuse to work with a debt settlement company and instead will immediately refer your account to an attorney to begin a lawsuit against you.
  2. If you get sued by a creditor a debt settlement company cannot represent you in court, prepare court documents for you, or assist you with legal advice regarding the lawsuit.
  3. Debt settlement companies cannot stop creditors and their debt collectors from calling you, writing you, or taking action to collect the debt.
  4. If the credit card company accepts a settlement for less than the full amount owed, they may send you and the IRS a Form 1099 for ‘forgiveness of indebtedness’ income. You may be liable for income taxes on the amount forgiven.
  5. You may be able to obtain similar debt settlement services for much less money and with much better service from a local attorney.
  6. Debt settlement companies sell their services. The salesperson you talk to when you dial the toll-free number is probably not trained to offer you unbiased  advice and counsel on the other options that might be available for your debt, such as a debt management plan through a credit counseling agency or filing for bankruptcy.
  7. Even settled debts will show as bad credit on your credit report for at least seven years from the date you last made a payment on the account.

It pays to shop around and compare your options. Spend some time with a credit counseling agency and an attorney skilled in debt resolution before you make a decision about how to resolve your debts.

Gary Armstrong is an attorney in Dallas, Texas specializing in consumer credit matters. He is a member of the National Association of Consumer Bankruptcy Attorneys and the National Association of Consumer Advocates.

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