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Debt Settlement in Pennsylvania

Are you a Pennsylvania consumer steeped in huge debts and with insufficient cash to meet your monthly obligations? Have all the harassing collection calls gotten on your nerves and robbed your peace of mind? If you are stuck in a plight like this, then Pennsylvania debt settlement might work in your favor!

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Debt settlement is a debt relief option where the creditor accepts reduced amount from the debtor that is regarded as payment in full of your obligations. It can be a great solution for debt-stricken consumers who cannot meet their obligations but do not want to confront the hazards of bankruptcy.

How does debt settlement work in Pennsylvania?

You can settle your debts by either negotiating with your creditors directly or you can sign up with a reputable debt settlement company in Pennsylvania.

How to negotiate with your creditors?

If you are looking for an effective way to settle your debts, without having to spend any extra money, then the best way is to negotiate with your creditors directly.

If you do not know the tricks of debt negotiation, then you can follow the steps below and negotiate with your creditors to reach an amiable settlement of your accounts:

  1. Know the law: Learn about the debt settlement laws in Pennsylvania, before you make a debt settlement offer to your creditors.
  2. Notify your creditors: Inform your creditors that you are willing to settle your accounts.
  3. State your reason for debt settlement: It is very important to let your creditors know that you are financially strapped and might end up filing for bankruptcy. Creditors are well aware that if you declare bankruptcy, they might lose the entire amount that you owe them. So, take time and state the reason why you need a debt settlement. This will increase your chances of getting the debt settlement proposal accepted by the creditors.
  4. Offer a big amount for settlement: Creditors are likely to accept your settlement proposal if you offer them a big settlement amount. So try and save quite a bit before you initiate negotiations with your creditors. But do not agree on anything more than 50% of your outstanding amount.
  5. Propose a payment plan: If you think you cannot afford to make the entire settlement amount in a single payment, then you can propose a payment plan, which will help you pay off the amount in affordable installments.
  6. Make sure your debts are reported as "settled": After the debt settlement, make sure your creditors report your accounts to the credit bureaus as "paid" or "settled" so your credit score increases.

How can a Pennsylvania debt settlement company help you?

If you think you cannot negotiate with your creditors efficiently, then you can enroll with a reputable debt settlement company in Pennsylvania. But before you enroll, check out whether the company is accredited by the Better Business Bureau. A BBB accreditation testifies to integrity of the company and assures that your debt issues will be in safe hands.

When you sign up with a debt settlement company, the company will work on your debt issues in the following way to reach a settlement with your creditors:

  1. First, the company will review your financial situation and your debts in order to get you enrolled in a program that will work for you.
  2. When you enroll in the settlement program, the company's debt 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 have to deposit an amount every month for the debt settlement.
  4. When enough amount is saved, the company's debt arbitrator will negotiate with your creditors to fix the settlement amount. Skilled debt arbitrators can reduce your payable amount up to 60% of the outstanding amount.
  5. After the settlement amount is fixed, 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 the debt settlement process in Pennsylvania

The duration of a debt settlement program depends on several factors such as the type of debt, the number of debts you want to settle, the outstanding debt amount, etc. Normally a credit card debt settlement takes about 3-9 months, while most other debts take about 1-3 years.

How does Pennsylvania debt settlement affect your credit score?

The effect of debt settlement typically depends upon the delinquency of your accounts and your credit score before you start the settlement process.

If you settle your delinquent debts, then your credit report will show them as "settled" or "paid" and your credit score will be boosted.

If your debts are not delinquent and your credit score is comparatively good, but you are not sure whether you can continue with your payments, you can still go for debt settlement.

When you sign up for settlement of non-delinquent debts, your credit score may decrease, but that is just a temporary phase. With successful settlement of your accounts, your credit score will increase again. Thus, debt settlement in general will make way to a good credit score.

Benefits of Pennsylvania debt settlement

A Pennsylvania debt settlement program gives you the following benefits:

  • It helps you avoid the hazards of bankruptcy.
  • You pay just the qualifying amount to clear your obligations.
  • It puts an end to harassing collection calls from creditors and debt collectors.
  • Your credit score improves.
  • You save a substantial amount.

Tax Consequences

Debt settlement is a taxable. The IRS considers any forgiven amount to be taxable income.

On the completion of the settlement process, your creditor is supposed to 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 notify the IRS about the debt amount that was forgiven through debt settlement and report it on your tax return.

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    • The debt settlement program typically lasts between 6 months to 4 years time.
    • At least 30% of the debt amount per creditor needs to be accumulated in the trust account for OVLG to give the creditor any settlement offer.
    • Not all creditors or debt collectors will accept a reduction in the balance, interest rate, or fees a customer owes such creditor or debt collector.
    • Pending completion of the represented debt-relief services, the customer's creditors or debt collectors may pursue collection efforts, including initiation of lawsuits.
    • That the use of the debt-relief service will likely adversely affect the consumer's creditworthiness, may result in consumers being sued by their creditors, and may increase the amount owed to creditors as a result of the accrual of additional fees and interest.
    • Savings a customer realizes from use of a debt-relief service may be taxable income.
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