Many consumers debate on whether they should file for bankruptcy. They seek out other alternatives such as debt settlement. A debt settlement is when a creditor is willing to take less than what the actual amount is owed. For example, you may owe Bank of America $10,000 on a credit card. However, they may be willing to take $3,000 in order to settle this debt.

Before going through this type of deal, always remember that the creditors are not on your side. I cannot stress this point enough. Creditors know that you have options – one option is to file for bankruptcy. This will leave the banks with nothing because the debt will be considered discharged. Therefore, they are willing to settle the debt for a lesser amount.

However, what banks do not tell you are the consequences of doing so. First, banks will not tell you that they will 1099 you at the end of the year for the amount that they have forgiven (the $7,000). This amount will be considered income on your tax returns and you will have to pay taxes on this amount.
The other issue with debt settlement is that one creditor may go forward and settle the debt for a lesser amount. However, you may have 5 other credit cards that are unwilling to negotiate a settlement. Therefore, you have already wasted $3,000 on settling one debt, and now you are back at square one.

Always consider your options before moving forward. However, also consider the consequences of your actions. Majority of Mr. Darvish’s clients are those that have attempted debt settlement or debt consolidation. Debtors like yourselves saw that it was hopeless to work with the creditors and were forced to file for bankruptcy. Although stressful during the process, his clients felt a large burden being lifted off their shoulders.

Mr. Darvish is a Los Angeles Bankruptcy Lawyer and has provided many consumers with Chapter 7 and Chapter 13 Bankruptcy assistances. Contact his office to learn more.