1

Verify, Verify, Verify!

The decision to engage in debt settlement is a complicated one and there are many things a consumer should consider before agreeing to pay a debt collector. First, make sure the debt is yours. Mistakes happen, which is why verifying the validity of a debt is important. Debt collectors regularly mail notices and call demanding payment. However, they may be contacting the wrong person or trying to collect on an illegitimate debt. If you panic and pay, you are not protecting yourself. Before agreeing to pay ask for written proof that the debt is in fact yours, its often called "verification of debt" (VOD). The Fair Debt Collection Practices Act offers consumers a certain level of protection when they request verification of the debt. Consumers should make a written request for verification of debt within 30 days of receipt of the first written notice. We recommend that you send this request via certified mail with return receipt.

2

Get it in Writing!

Once you know the debt is yours and that you owe it, get the terms in writing before you make payment arrangements. Whether you are paying the debt in full or the creditor agreed to accept less than the full balance, ask for written confirmation that you will no longer be liable for the debt. Without this, you could be pursued again for the same debt, or by another debt collection company for the unpaid balance. It is also important to keep a copy of the payment. If you send certified funds, make a copy of the check. If you made a credit card payment, ask them how it will appear on your credit card statement, and keep a copy of the statement. We do not recommend that you pay cash unless you receive a receipt. If you are unsure if the terms mean what you think it should, consult with an attorney. There is no need to guess when you can ask someone who can tell you with certainty.

3

Taxes!

Getting a good deal isn't the only factor to consider when settling an unpaid debt. You should also be aware of unintended tax consequences. When a creditor writes off a debt, they may issue a 1099-C (cancellation or forgiveness of debt). This means you may have to pay income tax on the forgiven or cancelled amount. In most cases, debt settlement and any resulting tax liability is still significantly less than paying the full balance of the delinquent account. However, it is important to be aware of potential tax consequences, particularly when negotiating the settlement of multiple accounts. If you are considering debt settlement consult with a tax professional to determine your potential liability and engage in strategic tax planning. In many cases, you may not any liability, but why guess when there are highly qualified and reasonably priced professionals who can inform you with certainty.

4

Don't Forget Your Credit Report!

While you are negotiating don't forget about your credit report. Your credit is probably the reason why you are trying to clean things up, right? Many people ask "what happens to my credit when I settle?" In many cases your credit will improve. But some believe that paying an old debt will hurt your credit score. Sometimes this is true, but for the most part your credit will improve the longer the derogatory account is closed, but doing nothing will only continue to hurt you. One last note: Debt collectors do not have to delete the account, though many try to negotiate a "pay for delete." Debt collectors can report the account but they must indicate that it is closed and has a zero balance.

5

Bankruptcy- Is it an Option?

The road to financial recovery takes time. You may be frustrated with the cost and time it takes resolve those unpaid accounts, especially when settling will strain your finances. Debt settlement is not the best solution for everyone. Sometimes, bankruptcy is a better solution. However, bankruptcy doesn't magically clean up all debts, and not everyone qualifies. So it is important to consult with a bankruptcy attorney to determine if you and your debts qualify. It is well worth your time and many bankruptcy attorneys offer a free consultation. Also, good bankruptcy attorneys can advise you about strategy for immediate relief and future financial stability. The take away here is to evaluate all your options before you start paying off those debts, verify that they are yours, get offers in writing, don't forget to plan for taxes, and remember to negotiate the credit reporting! We hope this guide helps and good luck!