MESSENGER
Burdelski Law Offices updated their business hours.
WHAT YOU DON’T KNOW ABOUT DEBT CONSOLIDATION COMPANIES CAN HURT YOU!
With all of the craziness going on these days of relating to the Covid19 lockdowns and shutdowns and layoffs and business closures, many people may find themselves behind on their credit cards or car loans or mortgages. This is definitely a scary situation to be in. However, what you don’t want to do is to make a bad situation worse and you can very easily do so if you make the wrong choices. Ads run on TV, the radio and the internet for Debt Consolidation which tell you to avoid Bankruptcy at all costs. What the ads don’t tell you is the possible financial dangers of employing a debt consolidation company.
One of the first things that happens with many debt consolidation companies do is that they tell you that they are going to negotiate with your lenders so that you will actually be forgiven of much of the debt that you owe. “Wow”, you might be thinking that is a great deal. I can employ these debt consolidation guys and I will be paying back much less debt. Sounds like a great deal, right? However, what they do not tell you is that their negotiating of the debt is actually going to end up costing you money! How is that you say? Well lets say that you owe $50,000 in credit card debt. You go to the Debt Consolidation company and they tell you that they have negotiated that debt down to $15,000.00. You think to yourself this is wonderful. What they don’t tell you is that the $35,000 that is “forgiven” is now considered TAXABLE INCOME by the IRS. So next year when you file your taxes, you will have to add $35,000 to your line one of your tax return!! So you could be in a situation where your income for the year was $25,000 but now you find that are in a much higher tax bracket and have to pay taxes on money that you never had in hand! Oh and by the way, that tax debt will have to be paid to the IRS. If on the other hand you went through a Bankruptcy, and the unsecured debt was discharged, there is no tax consequence for the discharge of that debt.
Another thing that happens when you employ a debt consolidation company is that usually the first $10,000 or more that you are paying back, is not going to your creditors! Instead, it is going to the debt consolidation companies themselves. That is why so many folks come to my office thinking they had been working with a debt consolidation company for years so the debtors think that some of their debt MUST have been paid down. However, when they check to see how much is paid down, the debtor’s sometimes find that their balances have actually increased.
When you go through a Bankruptcy whether it is Chapter 7 or Chapter 13 and successfully complete it and get a Discharge Order, the debt is gone for good; all of it! Further, the creditors cannot ever attempt in any way to contact you by any means to try to collect on that discharged debt. If they do try to contact you to collect on that debt after it has been discharged, the creditor can be sued for money damages.
