subject: Debt Settlement Programs - What Happens After Settling Debts? [print this page] Debt Settlement Programs - What Happens After Settling Debts?
Consumer debt is a growing problem around the world today.
This has created a huge demand for consolidation agencies. While liability settlement is a viable solution to some people situations, it is important to know what happens to the individuals indebtedness.
Aurora Lillo Editor of the "Best Debt Settlement Services" website -- http://www.BestDebtSettlementServices.com -- pointed out;
"...Also it is important to know about some of the externalities associated with debt consolidation. There are both pros and cons after receiving liability settlement. This article explains how debt is settled and positive and negative effects that follow...
What is Debt Settlement?
Debt settlement is a process of negotiating with creditor to reduce in individual's amount of indebtedness to a manageable level. Creditors know that a large percentage of debt will never be paid. This is where consolidation agencies come in. The agency becomes the middle man between the individual and the creditor. They contact the debtor's creditors and create an agreement on a reduction of the loans owed. The process is very effective in eliminating a large portion of an individual's outstanding liabilities. Most creditors accept a fifty percent reduction in the debt owed by an individual. Also, it is possible to get fees waived too. The agencies do charge a fee for their work. This fee can sometime be very expensive..."
Credit History
An individual's credit history is one of many thing effected by settling debt. Once the consolidation agency negotiates the outstanding liabilities, it is posted on the individuals records. As a result the credit score become very, very low. Once the settlement is posted to the individual's credit records it will stay on for seven years. This is a very long time to live with a bad credit score. Also, other creditors will be hesitant in extending a line of credit in the future. When the creditor sees that a settlement has been filed on an individual's credit record, they become reluctant to extend a line of credit. The consumer's credit score is negatively impacted by a settlement.
Taxation
"...While debt consolidation can eliminate a large percentage of an individual's liability, the reduction could result in more problems. In some cases the individual can be taxed for the reduction in liability received. For example, if the agency take $1000.00 worth of liability and reduces it to $600.00 the debtor would be required to report the $400.00 difference as taxable income. There is one way to avoid this hurdle. If the debtor is found insolvent before the debt is settled, they will not be required to report to difference to the IRS..." added A. Lillo.
Further Information By Visiting; http://www.BestDebtSettlementServices.com
