PLEASE NOTE: Our Office remains open during this coronavirus pandemic. Additionally, because of our deep concern for the safety of our clients and staff we now offer FREE VIDEO or TELEPHONE consultations for people so they can understand their financial options from the comfort of their own home.

O'Bryan Blog


The potential negative consequences of a debt settlement

It isn’t uncommon for Kentucky residents and others to fall behind on car payments, medical bills and other debts. Those who don’t believe that they can pay a debt balance in full may want to negotiate a settlement with a lender. If a balance has been sent to a debt collection firm, that firm may also be willing to take less than what a debtor originally owed.

There are many potential issues that debtors should consider before they decide to pursue debt forgiveness. For instance, it may have a significant impact on a person’s credit score for several months or years. Typically, accounts that are settled will listed as such on a credit report as opposed to paid in full. In addition, the IRS may require individuals to pay income tax on more than $600 in forgiven debt.

Those who are insolvent or who had their debts discharged through bankruptcy may owe the federal government nothing. As lenders are under no obligation to accept a debt settlement proposal, individuals may want to explore other options to become debt-free. These options may include a credit card balance transfer or applying for a debt consolidation loan. Using these tools may allow a person to obtain more time to pay down an outstanding balance while also paying a lower interest rate.

A person who wants to learn about bankruptcy & debt relief may be able to do so by talking with a legal professional. An attorney may provide more details about filing for Chapter 7, 11 and 13 bankruptcy. Legal counsel may be able to talk more about obtaining a debt settlement or negotiate a debt settlement on an individual’s behalf. If a debtor files for bankruptcy protection, an attorney may be willing to represent that person in court.

Share on facebook
Share on twitter
Share on linkedin

Disclaimer: The use of the internet or this form for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be sent through this form.