Debt Settlement: A Key Alternative to Bankruptcy in Denver

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

1) You either can’t afford your monthly debt payment OR you can afford your monthly debt payments but interest and fees are keeping you in debt despite making minimum payments on your credit cards.
If this is you, debt settlement offers you a way to get off the financial treadmill of credit card debt and get out of the unaffordable debt for a fraction of what you.

2) You must either be in default on your debt OR go into default when you decide to settle debt.

Why Does This Help?
You need to represent risk to the creditor. You achieve risk by not paying.
When this happens, your unsecured creditors will almost certainly accept a fraction of what is owed to settle the debt in full.

3) You have a lump sum of cash to pay the settlement amount OR you will be able to save enough when you stop paying your debt to settle within 12 to 24 months.

Why Does This Help?
Creditors are often willing to accept less to settle a debt if the settlement is paid in a lump-sum quickly after the settlement amount is agreed upon. The longer it takes for you to pay a settlement, the more you tend to pay to settle the debt.

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.

While creditors will often agree to accept monthly settlement payments over time, they tend to require you pay more in total to settle. Creditors typically accept less if you can pay the settlement with a lump-sum payment. Also, paying a settlement with monthly payments over time increases the risk that you default on the settlement payments. If this happens, the debt settlement deal is terminated and the balance you owe typically reverts back to 100 percent plus interest, less any amounts you already paid.

That said, there are two situations which can justify settling with a monthly payment plan. If the creditor will accept a favorable settlement payable through monthly payments, you may wish to take the creditor up on this offer if you have other debt to settle and limited funds with which to settle. In this situation, you can take advantage of the creditor’s willingness to accept payments over time while keeping whatever other funds you have available for settling with other creditors.

Additionally, you may have to accept a monthly payment plan settlement if you get sued. Lawsuits come with the risk of wage or bank account garnishment or judgment liens being placed on your home. This gives the creditor more leverage against you when settling a lawsuit. If you get sued and can’t pay what the creditor demands in a lump-sum, you may have to get on a payment plan settlement to avoid garnishments and liens. The debt settlement lawyers at The Wink Law Firm can help you buy time on lawsuits to negotiate and advise you on the best possible settlement strategy.

Taxes and other government loans such as SBA EIDLs have a settlement procedure called an Offer in Compromise, which includes a formal disclosure of your assets and income under penalty of perjury. For those that lack the ability to pay their government debt, an Offer in Compromise is a very effective settlement strategy that is often much better than what can be accomplished settling with other creditors. However, for those with the means to repay, an Offer in Compromise will require that all or nearly all of your debt to the government is repaid.

For more guidance from The Wink Law Firm, 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 leaves a negative mark on your credit, which is there for 10 years. However, the impact on your credit does not last nearly that long because your credit starts improving quickly after you file bankruptcy. You can achieve a good-to-excellent credit score of 700+ within 24 months of filing bankruptcy and you can be eligible for a mortgage within two to three years of filing for bankruptcy. For many people struggling with debt, bankruptcy is the fastest way to rehabilitate your credit.
• With debt settlement, although your credit may not take quite as much negative impact as a bankruptcy filing, you must endure a prolonged period of time in default to settle debt. During this time, your credit suffers. Depending on how long it takes you to settle your debt, you could have a better score two years after filing bankruptcy than if you spent that time settling debt.

Our debt settlement lawyers recommend focusing on the lowest cost debt relief option and not on the impact to your credit. Most people will be similarly positioned two years out regardless of whether they file bankruptcy or settle debt. But the difference in cost between debt settlement and bankruptcy can be significant.

The Wink Law Firm, 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.

Yes. The tax difference between settlement and bankruptcy is significant for most people because debt forgiven in settlement is taxable income while debt discharged in bankruptcy is not. Suppose you owe $10,000 to a creditor who agrees to accept $4,000 to settle the debt in full, which you promptly pay to take advantage of such a good settlement offer. At the end of the year, you will receive a 1099 for $6,000 of forgiven debt income from the creditor. You will have to pay income tax on this $6,000 unless you were insolvent when you filed bankruptcy. Insolvency means your total debt is greater than the total value of your assets (including your mortgage and 401K).

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

The team at The Wink Law Firm are expert debt settlement lawyers who can help determine your total liability for debt relief including taxes, offering you clear communication and the guidance toward the most cost-effective outcome for your circumstances.