Debt Settlement Settles Nothing

The marketing success of  debt settlement companies flows from two profound truths about the indebted consumer:  they want to pay their bills and they were rebuffed by their creditors when they sought realistic terms.  It’s only too bad that marketing is the only thing that debt settlement companies are successful at.

Today’s New York Times story on debt settlement concluded that the industry “deepens the misery of debtors”. I think the whole concept of debt settlement is faulty and impractical.  But the industry doesn’t care so long as it gets its money off the top.

Debtors who genuinely want to repay their creditors should avail themselves of Chapter 13, where they can generally write the terms on which they repay creditors and have that plan enforced by a federal bankruptcy judge.  Plus, debts settled in bankruptcy generate no cancellation of debt income and therefore no tax hit.

Debt settlement outside of bankruptcy trashes the consumers credit record, so the illusion that debt settlement will preserve credit history is just that, an illusion.  The individual might just as well get real, effective and tax free relief from debts in bankruptcy.