The United States Organizations for Bankruptcy Alternatives, Inc. (USOBA) is dedicated to advocating for fair legislation that will help provide consumers with a high level of protection.  As each state considers or introduces legislation our team participates by actively educating and cooperating with state officials, regulators and legislators.

USOBA is dedicated to advocating for fair legislation that will help provide consumers with a high level of protection.  As each state considers or introduces legislation our team participates by actively educating and cooperating with state officials, regulators, and legislators.

The information provided below is meant to clarify some of the most commonly asked questions by consumers.  USOBA is not a law firm, nor is this information legal advice.  Any decision for debt assistance should be carefully thought out and it may be appropriate to contact a local attorney for bankruptcy information.

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Frequently Asked Questions

• What is debt settlement?
  Debt settlement is a method of handling debts which seeks to reduce one’s debts by getting creditors to accept less than the full principal balance.
   
• Is there a cost for this service?
  Yes.  The cost and payment structure will vary from program to program.  Be sure to ask when the payments are due and whether or not you will be refunded any unused portion of your settlement account.  Also, ask where your money is going.  Many debt settlement companies have you set up a separate bank account or use an existing escrow company.
   
• How will debt settlement affect my credit?
  The purpose of debt settlement is to get you out of debt at a substantial reduction, not to improve your credit.  If you partake in a debt settlement program, it is likely that your credit will get worse initially and then may improve when your debts are paid off.  There are many factors that need to be considered when assessing credit worthiness, including your total amount of debt, payment history, available credit, number of creditors, etc.  For more information on how your credit score is determined, visit www.myfico.com.
   
• How long will a debt settlement program take?
  This can also vary.  A debt settlement company will consider many factors when determining the length of your program.  Some factors include: total amount of debt, number of creditors owed and availability of funds to be used for settlements.  Typically programs take at least 18 months, and seldom take more than 5 years.  This time frame may sound overwhelming, but it will take less time than if you were to pay off the debt on your own.
   
• Will I owe money to the IRS after completing debt settlement?
  This is a possibility.  For any forgiven debt over $600.00, the creditors are required to report the forgiven amount to the Internal Revenue Service.  The consumer is also required to report the same amount of forgiven debt as income on your tax return.  You should receive a form 1099-C from the creditors that have forgiven over $600.00 of your debt at the end of the tax year.  You may be able to write off the “income” from forgiven debts or you may be required to pay taxes on the “income” amount.  For more information, please contact your tax preparer.
   
• How do the debt settlement companies determine a client’s suitability for their program?
  Most companies will conduct a budget analysis, free of charge, to determine whether or not debt settlement is the best route for you to take.  It is important when choosing a debt solution that you consider every option.  The more suitable you are for the program, the more likely you are to successfully complete it.
   
• Will all of my debt be reduced when I finish the debt settlement program?
  Generally, if you complete a debt settlement program, all of the debts you chose to include in the program will be resolved with zero balances at the end of the program.  Generally, debt settlement companies only take unsecured consumer debt, such as credit card debt, personal loans, lines of credit, medical bills, etc.  Most debt settlement companies do not handle secured debts, such as automobile loans and home mortgages.  With this type of debt, the lender could repossess the automobile or the home if the payments are not made.  Also, debt settlement companies usually do not take debts for child support, alimony, taxes, or student loans.  It is important to understand that in order to successfully complete a debt settlement program requires both mental and financial commitments over a period of time.

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For consumer protective resources, please email info@usoba.org or call 281-820-0666 for more information.

Your input is extremely beneficial in ensuring the highest quality of customer satisfaction.  The information you provide will be completely confidential and will solely be used to improve the standards in the debt settlement industry.  Please help us to serve you better by clicking here or the link below and completing our brief survey about your debt settlement experience.

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