If you've fallen behind or defaulted on a debt, a settlement offer for less than you owe may seem like an ideal solution for both you and the creditor. However, as the bankruptcy attorneys at Backus Law Group in Montgomery, AL, explain, debt settlements often have many negative consequences that offset any benefits you might receive.
However, if you decide a debt settlement is in your best interest, here are a few dos and don'ts to help you get the most out of the process:
- Do Be Proactive: As soon as you realize that you're unable to meet your financial commitments, start talking with your creditors. If you're not yet far behind, they may be willing to negotiate a repayment plan or other, less drastic debt relief measures.
- Don't Ignore The Consequences: In many cases, settling a debt for less than you owe can significantly increase your tax liability, perhaps enough to offset the amount you saved on the debt. The settlement will also impact your credit score, potentially making it more difficult to borrow money in the future, so consult with a bankruptcy attorney before accepting any offer.
- Do Assemble Documentation: Before agreeing to a settlement, creditors will typically want to see proof that you're unable to pay and experiencing real financial hardship. Usually, this means submitting income documentation, a listing of debts, and other financial statements.
- Don't Be Unrealistic: Before agreeing to any settlement, whether it's a lump sum or a repayment plan, make sure you can actually live up to your side of the bargain.
Whether you're planning on filing for bankruptcy or considering a settlement, you can rely on Backus Law Group to identify all of your options and help you find the best path forward. Call their offices at (334) 265-0800 to discuss your financial situation with a skilled bankruptcy attorney, or visit their website for more information.