I previously wrote about the Ten Questions to Ask When Evaluating a Debt Settlement Company.  Now, more than ever, it is critical that YOU ask these questions when seeking help from a qualified debt settlement company.  Do not take the word of the sales rep/debt consultant when calling a debt settlement company.  It will only take you a few minutes to do some research online to find out how long a company has been in business and what their Better Business Bureau rating is.

Remember that committing to a debt settlement program is a long-term relationship.  Avoid high pressure sales tactics and take your time in making a decision.

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The Fair Debt Collections Practices Act (FDCPA) was created to help protect you, the debtor, against the unlawful and abusive tactics that these collection agencies practice everyday. Just knowing the restrictions that are placed on these collection agencies will prepare you when it comes to dealing with them directly. For more information on what a creditor can and can’t do, please visit:

http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre18.shtm

Just remember, creditors are use to dealing with debtors who know nothing about their rights and therefore bully consumers into providing what they want. It is important that you stay strong and do not give into the creditors scare tactics. Do not be afraid to stand your ground and let creditors know that you are aware of your rights and ability to file official complaints with the Federal Trade Commission (FTC). The creditors are simply pushing you as far as they can, so do not be afraid to stand up for yourself.

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In the past several years, there has been dramatic growth in the visibility of so-called debt settlement agencies. These are firms which advertise their supposed ability to “cut your credit card payments in half,” or promise they can “settle” your debt for only a small portion of what you owe — without filing bankruptcy.

We’ve got “so called;” there’s a “supposed ability;” and how could we leave out the very scary “’settle.’” Well, Mr. Andresen, check for yourself. We actually publish our weekly and monthly settlement stats — even the “worst” settlement, which even you oughtn’t find all that scary, Mr. Andresen. What? Do you wrongly suppose that the concept of settling disagreements, disputes, or breaches of written or verbal contracts arose only after thousands of years of human interaction, only to be bestowed upon us lucky ones by the legal profession? Real people can’t arrive at settlements without a lawyer (or two or three…) in-between them, drafts upon drafts of legal documents; file endorsed to boot?

Well, I think that what Mr. Andresen really means by “For Most” is “None;” and “Never.”

He goes on to enumerate the supposed evils of debt settlement (”For Most”). However, let’s dispense with all that (most of it is bias-driven drivel designed to scare you), and move on to the “most unpleasant surprise.”

The most unpleasant surprise is that if the debt settlement agency actually does succeed in settling the consumer’s debts, income tax usually must be paid on the amount of the debt forgiven. For example, if your credit card debts total $50,000, and if a settlement of $25,000 is obtained, income tax must be paid on the $25,000 worth of debt which is forgiven.

Allowing for the fact that the IRS Rule is true in fact, is it really true in practice for the vast majority of people who would be typical candidates for a debt-settlement program? Mr. Andresen allows that “usually” it’s true. Understanding the characteristic desire in lawyers to be as economical and brief in their written explanations as possible, I’m sure he was just trying to cut to the point, and not mislead. After all, “usually” takes a lot less time to write (and misapprehend) than does…

Exception: The debt is canceled when you are insolvent. However, you cannot exclude any amount of canceled debt that is more than the amount by which you are insolvent.

That’s from the same IRS Section linked above. I’ve provided it; because Mr. Andresen didn’t. Wikipedia (as of this writing) has a pretty good explanation.

However, the IRS does not require taxpayers to report forgiven debt if the tax payer was insolvent at the time the creditor forgave the debt. Being insolvent means that the amount of a debtor’s debts are greater than his/her assets (how much money and property the debtor owns). However, the IRS adds that “you cannot exclude any amount of canceled debt that is more than the amount by which you are insolvent.”

 

For example, if a taxpayer is $10,000 in debt and owns $3,000 in assets, he/she cannot exclude more than $7,000 of forgiven debt from his/her income tax. Any forgiven debt over $7,000 that year must be reported as taxable income.

I don’t know about you, but that makes a lot more sense to me, within the context of the rules. If what’s forgiven makes you solvent again, then you’d pay tax on the amount by which it puts you in the black, not the portion that got you up to break even.

Now, I don’t expect Mr. Andresen to know a lot about debt settlement, for surely even he doesn’t expect himself to know much of anything about it, but I presume he knows quite a lot about bankruptcy law, including the blanket exemption from paying taxes on all debt discharged through bankruptcy. I also presume that he knows very well that for most — if not all — simple consumer bankruptcies, the debtors are substantially insolvent at time of filing. It’s kinda the raison d’être of bankruptcy — go figure: chronic insolvency. Since Mr. Andresen is quite obviously perturbed that some people that he and other lawyers might receive fees from, opt instead to do the very best they can in a debt settlement program, can we not conclude that he’s talking about essentially the same sorts of people, like the chronically insolvent?

There’s more. Since we’re talking about settlements and not outright forgiveness (Provanta averages about 40%, across the board), it’s unlikelier still that our program will push anyone into that taxable area. In the example above, using our averages, the debtor would have been forgiven $6,000, $1,000 less than the threshold where further forgiveness would have been taxable.

So sorry, Mr. Andresen, but this is a new era. It’s transparent, and laughable, that so many like you believe that you can fool, mislead, and scare people in the long run using this wonderful tool of the Internet. You’ve had it good for so long, with your professional associations, lobbying firms, and a government populated largely by your brethren. We’ve got the “best” and most complex legal system that money could possibly buy. But it doesn’t stand up to very much honesty. Let me ask you this: how often do you tell people they can do it themselves? Do you ever tell on yourself in any of your articles? Do you ever tell potential clients that in spite of the law, they may have other (maybe better) options, and do you put that in any of your articles? Do you ever tell on others in your own profession, publicly, or do you always stick together? Not a week — probably not a day — goes by when we don’t refer someone to investigate bankruptcy. Do you ever send potential clients to a debt settlement professional?

Do you just feign forthrightness — in the usual indignant manner layers are given to do — Mr. Andresen, or are you really and truly transparent?

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