Debt Settlement: A Key Alternative to Bankruptcy in Denver

A good candidate for debt settlement typically needs to meet the following criteria:

1) You are not paying any amount to your creditors.

Why Does This Help?
You need to represent risk to the creditor. You achieve risk by not paying.

If you are paying a smaller amount than is owed every month, you are still paying, and a creditor will likely not negotiate a percentage of the total amount owed.

2) You have a lump sum of cash to pay the settlement amount.

Why Does This Help?
A creditor is more likely to accept a fraction of the debt as a settlement if someone can pay a lump sum. If you go from not paying at all on 100 percent of the debt to offering 50 percent of your debt, this is a far better deal for the creditor.

Additionally, someone with a lump sum available is a lower risk to the creditor than someone who promises to pay in monthly sums, and who, therefore, has the potential to default if they can’t make one of the monthly payments.

It is also important to know that your personal troubles are not enough to move a creditor to offer a percentage of your debt as a debt settlement, and no one wants to squabble with a debt collector. A debt settlement lawyer is useful here in determining how you can represent risk for the creditor because this is what provides leverage in negotiations.

One of the dangers of paying off a specified sum monthly instead of paying a lump sum is that if you default, the debt settlement deal is terminated. Then, the balance you owe typically reverts back to 100 percent plus interest, less any amounts you already paid.

Unfortunately, no. Taxes and other government loans such as SBAs have formal settlement procedures which – much like bankruptcy – include an evaluation of your assets and income to determine your ability to repay.

For more guidance from Wink & Wink, your Denver bankruptcy lawyers, see our tax resolution support page.

When weighing the pros and cons of bankruptcy and debt settlement, many clients are understandably concerned about the perceived stigma of bankruptcy and want to quickly opt for debt settlement.

There is a common misconception that debt settlement is better for your credit score, but this is not necessarily true. Here’s a simple breakdown:

• Bankruptcy, a quick way to resolve your debt, can help you achieve a good-to-excellent credit score of 700+ within 24 months. You can also be eligible for a mortgage within two to three years of filing for bankruptcy.
• With debt settlement, although your credit may improve immediately, there is a period of default that may prevent you from reaching a 700 credit score as quickly as bankruptcy.

Our debt settlement lawyers recommend focusing on the best possible outcome, not the immediate satisfaction of a higher credit score. Better credit will come with all forms of debt relief, but resolving the issue to settle your debt is most important.

Wink & Wink, premier Denver bankruptcy attorneys, offer expert guidance and consultation. We will hear your concerns and help you set aside misconceptions about debt relief. We offer a positive, future-affirming approach to your debt relief solution while seeking the best possible outcome.

Suppose you owe $10,000 to creditors, and you settle to pay a lump sum of $4,000. On the remaining $6,000 you did not pay, you will receive a 1099 for taxable income from the creditor. 

This is a key difference between debt settlement and bankruptcy. When filing for bankruptcy, you do not pay taxes on the discharged debt. 

However, if you were insolvent when you settled the debt (your assets were worth less than the debt at hand), your tax liability may be forgiven. 

The team at Wink & Wink are expert debt settlement lawyers who can help determine your total liability, offering you clear communication and the best outcome for your debt relief circumstances.