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What Are the Risks of Working With a Debt Settlement Company?

Posted on in Bankruptcy

Sunrise bankruptcy attorney

When your credit card bills begin to build up and your pockets are feeling empty, you may be unsure of how to handle the situation. Debt can accumulate quickly, and without additional income coming in, you may not be able to pay off your debts by the date that your creditors are requesting. Filing for bankruptcy may be in the back of your mind, but you are likely considering your other options before fully making your decision. There are a number of bankruptcy alternatives, many of which do not fully solve your problems. Debt settlement companies are often considered by those who are deeply in debt and are avoiding filing for bankruptcy. While you may be avoiding bankruptcy, the risks of debt settlement companies are rarely worth taking.

What Is a Debt Settlement Company?

Debt settlement companies have the same goal as bankruptcy -- helping you rid yourself of insurmountable debt. However, these debt settlement programs are typically for-profit companies. The company or program will attempt to negotiate with your creditors to allow you to pay a “settlement” to resolve your debt. This settlement will typically be a lump sum payment that is less than the total amount that you owe. In order to build up this lump sum, the company will request that you set aside money each month into an account that holds your funds for paying off your debt. This savings account will eventually build up to the settlement that the company negotiated for you and you will pay off the debt with that saved money.

What Are the Risks?

Working with a debt settlement company may seem like a fairly sweet deal -- your debt gets reduced and you have more time to pay it back. However, these companies rarely disclose the risks that you are taking when working with them.

  1. The savings timeline when working with these companies can often be unrealistic. These companies typically require their clients to set aside these savings for 36 months or longer, which for many financially struggling individuals is impossible. In many cases, debtors will start working with these companies, set aside these payments for a while, then begin to struggle to set aside these funds before any of their debts are paid off. They will then drop out of the program and continue to carry around this debt.

  2. There is no guarantee that your creditors will agree to the negotiations being made with the debt settlement company you are working with. These companies will often promise their clients that the negotiation has been made, while they begin to set aside money to pay off this settlement, only to find out that the settlement amount was not set in stone and they still owe their full debt amount. Debt settlement companies also typically focus on negotiating your smaller debts before your larger ones, leaving your substantial debts to incur interest and fees and to continue growing in the meantime.

  3. Debt settlement companies often advise their clients to stop sending direct payments to their creditors and instead save those payments to be used toward their lump-sum settlement payment. However, following this strategy can leave a lasting negative impact on your credit score and accrue late fees and penalties, further building up the amount that you owe to your creditors.

Contact a Fort Lauderdale, FL Bankruptcy Attorney

Debt settlement companies may seem like a valid alternative to delving into the legal logistics of bankruptcy; however, they rarely fulfill their promises and can often leave their clients in further financial troubles than when they started. Before deciding which route to take to overcome your debts, speak with a reputable bankruptcy lawyer to gain professional advice. The Elliot Legal Group, P.A. is here to help you determine which path is best for you. Our experienced Broward County bankruptcy lawyer works tirelessly to help his clients through their rocky financial situation and place them on the road to recovery. For help with your case, contact our firm today at 754-332-2101.


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