Understandably, you want to explore all your options before filing for bankruptcy in Tennessee. To that end, you consider working with debt-relief companies. Could they do more harm than good?
The AARP explains why debt-relief programs do not live up to their name. Take steps to prevent a major mistake well before you make it.
Prepare to pay several fees to enlist a debt-relief company’s services. While banned by the FTC, some companies still charge customers upfront fees. You also pay a fee based on the amount of debt you have, a percentage that may total between roughly 20% to 25%. Depending on the provider, you may also pay loan insurance.
You work with a debt-relief company to boost your credit score, but you could harm it, instead. The company may recommend that you stop making payments for at least six months to make your creditors willing to work with the debt-relief company. Following through with the advice means your creditors report your late payments, which damages your credit score.
While a debt-relief company may claim to work quickly to avoid your creditors taking legal action against you for not paying your debt, do not count on a guarantee.
Say that a company forgives or settles your debt. If the amount surpasses $600, the IRS treats it as taxable income. That means you may pay taxes on the final amount forgiven or settled.
Even if a debt-relief company presents a settlement offer to your creditors, they do not have to accept it. Further, your lender may refuse to work with the company. Not only may this refusal put you back at square one, but additional fees from the company and your creditor could mount.