Creditor Negotiations

Creditor Negotiations
Creditor Negotiations or Debt Settlement Is the process whereby you and your creditor agree to settle an account for less than the balance owed. Debt settlement is not for everyone and not every creditor will participate.
Debt settlement is also known as debt arbitration or debt negotiation. Many people view debt settlement as a viable alternative to Bankruptcy. For the debtor, this makes obvious sense – they avoid the stigma and intrusive court-mandated controls of bankruptcy, while still lowering, sometimes by more than 50%, their debt balances. Whereas for the creditor, they regain much of the amount owed and not risk loosing the entire amount in a bankruptcy discharge.

How Does Creditor Negotiations Work
Essentially we try to get you and your creditor talking. During these talks we attempt to work out a settlement plan which is good for everyone. Also if the creditor agrees to a debt settlement plan, you must make your payments directly to the creditor until the negotiated settlement amount is satisfied. We do not accept payments on behalf of your creditors. Our fees are a fixed amount and usually paid at the start of our engagement.

Drawbacks To Debt Settlement
1. Your credit score (FICO score) will be lowered
Your credit report will show evidence of the debt settlement arrangement you made with the creditor and this will have a negative impact on your credit score. However this bad mark only lasts for about two years.
2. Possibility of lawsuit
You may be sued for the original balance if you fail to pay (or under pay) the creditor the amounts you agreed to.
3. Tax consequences
If the amount avoided due to a debt settlement plan is greater than $600, the creditor will provide you with a 1099-C tax form. The amount avoided will be treated as taxable income under the IRS rules. (See IRS Publication Form 982)

In our experience these creditors actively resist debt settlement plans
- Discover Card

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