subject: Are Debt Management Firms Real? [print this page] As you probably already know, there are all sorts of new debt management or debt settlement companies around these days. You have probably seen their advertisements on T.V. claiming you will be able to avoid bankruptcy and they will be able give you credit card debt help for pennies on the dollar. As usual, these advertisements are often too good to be true.
Debt management, unfortunately, has been working with little to no regulation--meaning they are able to make all sorts of claims in advertisements without ever telling you what they actually do. For the most part, a debt management company will ask you for an upfront fee, take your money, and a few months to years later attempt to negotiate your debt. You will still be open to a lawsuit or harassing calls from your creditors in the mean time.
What debt management companies dont tell you is that you can do exactly what they do without them. Heres how it works: usually when you need credit card debt help the credit card company sells your debt to another company. This other company will usually take less than the total amount of debt you owebecause they didnt pay full price for the debt either.
Debt settlement companies also don't want you to know that their services usually have the same impact on your credit history as bankruptcy but they don't provide nearly the same amount of benefits. Unlike bankruptcy, debt settlement does not give you protection against harassing creditor calls, wage garnishments, and lawsuits.
Even more, according to the tax code, you will still be taxed on the amount of debt that was forgiven in debt management as income. That means if you had $2000 of debt, but paid $1000, you will be taxed on the $1000 that you did not pay. The federal government will tax any portion of your credit card debt that as been erased in the same way that they tax a paycheck.
Finally, debt settlement cant stop wage garnishments, harassing calls, or law suits. Regardless if the debt settlement company can actually erase your credit card debt, you can still have your wages garnished or be sued.
How can you avoid this problem? Don't buy into the inflated advertising of debt management companies and instead look for a respected bankruptcy attorney. Unlike a debt settlement firm, a bankruptcy attorney can get you legal protection from creditors. What does that mean? When you decide to go for bankruptcy you wont have to worry about wage garnishments or creditor phone calls anymore. A bankruptcy can make sure your home gets protection from foreclosure.
You are going to need to figure out if you want a Chapter 7 or Chapter 13 bankruptcy, and thats where a good bankruptcy attorney comes in. If you think bankruptcy may be the right option for you, always remember the best attorneys will have plenty of free information for you before you ever enter their office.
