Debt Settlement and Essential Facts that Every Consumer Should be Aware Of

Settlement is an important aspect of just about every area of law. In many cases it is a more beneficial to both the debtor and the creditor, allowing the debtor to pay a smaller sum than originally owed and allowing the consumer to get a significant amount of the money they are owed while incurring less expense in endeavoring to procure payment of the full amount. Often settlement is the preferred means of handling a debt collection dispute, in fact more cases are settled than tried on any given year. However despite this being a preferred means of dealing with issues many consumers are uninformed about important facts surrounding the settlement process.

First of all debts that are settled are often settled for a large amount, in fact the average amount of a settlement amounts to roughly 88% of the full amount of the debt owed. Thus in many cases it may not be in the debtor’s best interest to settle a debt that he or she feels is incorrect. Tax liability is also an important consideration in determining whether to settle a debt. Depending on the amount of the debt and what the parties settle for, the debtor who settles for a lower sum may be required to claim the amount of the cancelled debt as income thus increasing their tax liability. Another important consideration in settlement pertains to the debtors credit score. While the debtor is freeing himself of a debt at a discount, the debtor is still incurring damage to their credit score.

It is important to remember that settlement may not always be an option. In many cases a debtor will have multiple outstanding judgments against them. Chances are that not every creditor may be as willing to settle as others. Even if it may be in the best interest of both parties a creditor cannot be forced to settle a debt. In the event that a creditor refuses to settle, the debtor can still be subjected to suit which may as a result hinder the debtor’s ability settle other outstanding judgments. Settlement can be a powerful tool when executed correctly. In many scenarios debtors do not have equal bargaining power with their creditors. While it is not necessary for a debtor to obtain counsel to settle a debt it may be beneficial to a debtor to do so to level the playing field in order to settle a case for the best value they can.