Debt Settlement in Alabama
If you are an Alabama consumer troubled with large debt amounts and debt collectors are pestering you repeatedly, then you should consider settling your debts in order to get rid of these problems.
Debt settlement is by far the safest option for consumers who are unable to make full payment on their debts but desperately want to avoid bankruptcy.
How does Alabama debt settlement work?
Debt settlement is a debt reduction program where the creditor accepts a reduced sum of money from the debtor that is considered to be full payment of the obligation.
You can settle your debts in two ways:
- 1 You can directly negotiate with your creditors to reach a settlement, or
- 2 You can enroll with a debt settlement company accredited by the Better Business Bureau in Alabama.
How to negotiate with your creditors?
You can follow the steps below to negotiate with your creditors and reach an amicable settlement of your debt accounts:
- Know the law: Before you set out to negotiate with your creditors, learn about the Alabama's debt settlement laws.
- Inform your creditors: Inform your creditors that you are willing to settle your accounts.
- Convince your creditors about your financial problems: It is very important to make your creditors understand that you are in financial trouble and might end up filing for bankruptcy soon. Creditors are well aware of the fact that if you declare bankruptcy, they might lose the entire amount that you owe to them. So, your creditors will accept your settlement proposal, if you can convince them calmly.
- Offer a large settlement amount: Creditors are likely to be more interested in your settlement proposal if you offer them a large settlement amount. But you should not agree on any amount more than 50% of your outstanding debt amount.
- Propose a payment plan: If you think you are unable to pay the entire settlement amount in a single payment, then go ahead and propose a payment plan. With it you can pay off the settled amount in affordable installments that are within your monthly budget.
- Make sure your debts are reported as "settled": Once the settlement is over, make sure your creditors report your accounts to the credit bureaus as "paid" or "settled" so your credit score increases.
How can Alabama debt settlement companies help you?
You can enroll with a debt settlement company in Alabama to get your debts settled. When you sign up with a settlement company, the company will take up your debt issues and work on them in the following manner:
- 1 At the outset, the company will analyze your debts and your financial situation and then get you enrolled in a program that will suit you.
- 2 When you enroll in the debt settlement program, the company's debt settlement attorney will inform your creditors to stop all communication with you and that your debt issues are being handled by the company.
- 3 Then, the company will create a trust account in your name, where you will be required to save an amount for debt settlement.
- 4 When enough gets saved in your account, the company's debt arbitrator will negotiate with your creditors to fix the settlement amount. With skilled negotiation, your payable amount can be lowered up to 60% of the outstanding amount.
- 5 After the settlement amount has been determined, the company will create a suitable payment plan to help you pay off the settled amount. Settled amounts can either be paid in a single payment or in installments.
Duration of a debt settlement process in Alabama
Credit card debt settlements take about 3-9 months, while most other debts take about 12- 36 months. However, the duration also depends upon several other factors, such as the number of debts you are settling, the total debt amount you are settling, the kind of debt, etc.
How does Alabama debt settlement affect your credit score?
The effect of debt settlement on your credit score is decided by:
- The delinquency of your accounts.
- Your current credit score.
If you settle your delinquent accounts, your credit report will show them as "paid off"/ "settled" and that will increase your credit score.
Debt settlement can be also helpful even if you do not have delinquent debts and your credit score is good. What causes a debtor to choose debt settlement is their inability to continue with the monthly payments towards their obligations. With debt settlement, you can do away with your obligations at a reduced amount.
If you enroll in a settlement program with current debts, your accounts may become delinquent and your credit score may decrease. But that is just a temporary phase. On successful completion of the settlement, your score will increase again and put you in a better position than someone who has been defaulting on his payments. Thus, debt settlement will lead to a good credit report.
Advantages of Alabama Debt Settlement
The following are the advantages of Alabama debt settlement:
- You can avoid the complications of bankruptcy.
- You pay just the qualifying amount to clear your debts.
- Harassing collection calls from creditors/debt collectors are stopped.
- You can improve your credit score.
- You can save up substantially.
Any amount forgiven in a debt settlement process is considered to be taxable income by the IRS and you are expected to report this amount on your Federal tax return.
On successful completion of the settlement process, your creditor should report your forgiven amount to the IRS and send you a 1099C form so you can report the income on your Federal tax return. If your creditor does not send you the form, you should take the initiative to notify the IRS about the forgiven amount.