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Beware -- Be very aware.

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Posted by mk_378 ( on June 04, 2004 at 13:39:20:

In Reply to: charge off- impact on taxes? posted by anon on June 04, 2004 at 02:55:40:

This "debt reduction lawyer" may be charging you big money for something you could readily do yourself -- the "informal bankruptcy". Basically you quit paying creditors (thus ruining your credit rating, but maybe it's already bad) and ignore them (pretending to have no money) unless they sue you. In that case you would negotiate a settlement before the trial and pay it to avoid getting a judgement against you.

The settlement amount is generally less than the full debt, thus promoters of this scheme call it "debt reduction." But they have no magical negotiating prowess that you don't. In fact, if they tell creditors that you are using this method, the creditors are naturally going to be very prone to sue (they know you have money now, and also know that's the ONLY way they'll get any of it) and hold out for larger settlements. If you are paying the "debt negotiator" money monthly on the pretense that it will be used to pay settlements later, it's very likely that the company will rip it off instead of using it for settlements. When the lawsuits do hit, many of these companies will simply take your money and run.

If creditors do send a 1099 form, this is good for you because it means the debt has been *forgiven* and no one can attempt to collect it any more. This doesn't happen right away after a charge-off, it if does at all, it will be years later after several people have decided that the debt is uncollectable.

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