Legal Law

The debt relief law

What you don’t know about the business of getting out of debt will cost you. The question to ask yourself is how much are you willing to pay for freedom. Simply, the options are (1) pay for everything in the usual way; (2) negotiate a lower amount than you owe through negotiation; (3) consolidation; (4) debt relief payment plans; and finally, (5) bankruptcy. Certainly, if you are struggling to pay what you owe, you are probably in too much debt. Let’s look at the costs and benefits of each of these options. We will skip the “regular payment” because if you did this, you would not be reading this article.


When we negotiate our debt, we ask the creditor to accept less than what is owed. Let’s say you owe $ 5,000.00 and you convince the company to take $ 2,500.00 instead. You will pay them the $ 2,500.00 and then you will receive a tax bill for the other half that was canceled by the creditor on a 1099 tax form.


When you take all of your debts and consolidate them, you are usually getting a new loan. When you are denied a consolidation loan, you will need to look at other options. A new loan will pay off all other debts and you will make a payment on the agreed terms, plus interest. This is not a plan to reduce what you owe. The average annual percentage rate (APR) for this type of loan is around 18.56%. To put that in perspective, the average range of interest rates charged on consolidation loans is generally between 8.31% and 28.81%.

For a total debt of $ 30k with an average interest rate of 48.56%, the monthly payments would be approx. $ 771.00 for 60 months and the total payment would be $ 46,258.00, which makes it the most expensive outing.


Today, debt relief companies are everywhere, promoting you to “speed up your debt free date” and provide you with a repayment plan that you can afford. Some of these companies have been sued for violating telemarketing rules, charging up-front fees to help, and failing to inform you of your rights to deposited monthly payments.

What you are paying here is for the company to take your monthly payment and negotiate a settlement of your debts for less than what you owe. This is a trading strategy with a payment plan. There will be a 1099 tax bill after these accounts are settled, so prepare for that too. You can then pause and read the fine print I found in an ad:

“Clients who make all of their monthly program deposits pay approximately 70-75% of their originally enrolled debts for 24 to 60 months. Not all clients are able to complete their program for various reasons, including their ability to save sufficient funds. Our Estimates are based on past results, which will vary based on your specific enrolled creditors and the terms of your individual program. We do not guarantee that your debts will be resolved by a specific amount or percentage or within a specific period of time. Make monthly payments to the creditors or provide tax, bankruptcy, accounting or legal advice or credit repair services. The company does not offer debt settlement services in all states and fees may vary from state to state. In some states, we may recommend a Trusted business partner who can provide you with alternative debt relief services. Comu See a tax professional to discuss the potential tax consequences of a less than full balance debt resolution. ion. Read and understand all program materials before enrolling. Using debt settlement services will likely negatively affect your creditworthiness, may result in you being liable to collections or being sued by creditors or collectors, and may increase the outstanding balances of your enrolled accounts due to the accrual of fees and interest. However, the negotiated settlements we obtain on your behalf settle the entire account, including all increased fees and interest. “

This means that your savings are a nominal discount of 25% to 30% of your debts after paying company fees and costs to maintain that account for you. In the meantime, they can’t keep interest from piling up, or from creditors redoubling their efforts or even suing. This could increase your costs over time and still cause you to go bankrupt. So maybe you can save time and money by considering the last option.


There are two chapters of the Bankruptcy Code that anyone may want to file. Chapter 7 bankruptcy is a liquidation case where you don’t have money to make a payment plan. The other is a Chapter 13 bankruptcy case, which is a 5-year repayment plan case. Let’s compare a bankrupt payment plan to the plans just mentioned.

Let’s level the playing field so that you have enough information to make an informed decision for yourself.

In reality, it is extremely difficult to pin down the total cost of these debt relief plans because interest continues to grow as you create an account for the company to use to negotiate a discount. What’s worse is that the discount they get will likely be higher than the one you will see because there is an offset in their fees for the service.

In the event of bankruptcy, fees and costs are set and included in the monthly payment. For those same $ 30k of debt, and adding 11% of the trustee’s fees and the average of $ 5k of attorney’s fees, and even discounting the debt by 30%, you will get a monthly payment of $ 470.00 per month for 60 months for a total cost of only $ 28,200.00 for a Chapter 13 case.

Bankruptcy offers protection against creditors by invoking Automatic Stay, which is a court order that prevents creditors from filing lawsuits against you or otherwise attempting to collect while making your payments under Chapter 13 of the Bankruptcy Code. Other benefits include preventing interest from accruing on unsecured debt (i.e. credit cards), and there are no income tax consequences for debts canceled in bankruptcy. Oh, and did you know that credit scores really do improve when you’re on a repayment plan case? They do. How much are you willing to pay to speed up your debt-free date, and do you really understand the price you’ll pay?

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