Category: Attorney Post

Is Debt Settlement Worth It?

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Many Americans struggle with an increasing amount of debt and a desire to be in a more stable financial situation. In contemplating how to overcome large amounts of debt, some consumers may pursue the route of debt settlement in order to decrease the amount of money they must pay back to their creditors. Although debt settlement can be an effective way to pay off your financial obligations, you must consider the benefits with any potential setbacks that may occur.

Debt settlement is when you negotiate with creditors to pay less than the full amount for a debt you owe. Negotiations occur and you make an offer to the creditor, for example, to make a lump sum payment of $2,000 instead of the $4,000 you owe. If the creditor accepts your offer, you then would make your payment and the account will be settled, meaning you will have no additional obligation to pay the creditor for the full amount.

The benefit of not having to pay your full obligation to the creditor seems very attractive on its face, but must be reconciled with the potential downsides of the settlement. Many people do not want to undertake the task of negotiating the debt themselves and will hire a debt settlement company to work on their behalf. The following are a few of the main things you should look out for and consider when deciding if debt settlement if the right path for you:

  • Making payments towards your debt during the settlement process

    Some companies will advise you not to make payments during the process as it will make your financial situation seem more dismal, and possibly more likely the creditor will want to settle the account for less than the full amount. By not paying your bills, however, you may rack up more fees and interest during this period, and there is no guarantee the creditor will agree to a settlement.

  • Amount of Fees charged

    Make sure to pay attention to and fully understand the fees associated with using a debt settlement company. Often times, the company will charge you a fee equal to the amount of money paid to settle the debt, which could be as high as 25% – 30%. Alternatively, companies may charge you a lower percentage equal to the total amount of debt owed. You should also ensure whether money paid to the company is going directly towards your debt or if it is being applied to the company’s fees.

  • Tax consequences

    Because the amount you ultimately settle for is less than your total obligation, the creditor will report a loss on the amount of money not paid. If this amount exceeds $600 then the creditor will report this to the IRS, who will in turn consider it income and require you to list it with your taxes. Depending on the amount of debt forgiven in the settlement, this may cause your refund to be significantly lower or cause you to owe more money in taxes to the IRS.

  • Impact on your credit score

    If you choose to settle an account instead of paying the full amount owed, the account will show as “settled” on your credit reports and will reflect negatively on your credit history. The account will reflect this way regardless of whether you previously paid the account on time or not. If the account was never late and then settled, it can remain on your credit reports for up to 7 seven years from the date of the settlement. If the account was already late or delinquent before being settled then it can stay on your report for up to seven years from the date the account first went late or delinquent. Furthermore, failure to pay a debt in full will almost always be a sign of risk to potential lenders.

The decision to attempt to settle your debts either yourself or through a company should be carefully thought out and based upon your own personal circumstances, with both the advantages and disadvantages kept in mind. It is also important to consider other means to begin paying down your debts, such as debt consolidation or a debt management plan in connection with credit counseling. If you have questions about what method would be best for you then strongly consider speaking with someone who can assist you along the way or point you in the right direction.

Learn how you can start repairing your credit here, and carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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IRS Now Using Private Collection Agencies for Certain Tax Debts

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Consumers commonly receive phone calls from scammers impersonating government agents to collect money. The Internal Revenue Service (IRS) regularly warns consumers about falling victim to phone scams, especially those involving payment for back taxes. Under a new federal program, however, the IRS will assign certain overdue federal tax debts to four private collection agencies (PCAs). These private debt collectors will contact taxpayers on behalf of the IRS to collect certain outstanding tax debts. Consumers should familiarize themselves with the IRS’s private debt collection program to protect themselves against scams.

IRS Private Debt Collection Program

Federal law requires the IRS use private debt collection agencies to collect certain overdue tax debts. In December 2015, Congress passed the Fixing America’s Surface Transportation Act (FAST Act). Although the primary purpose of the FAST Act is to fund transportation projects, Section 32102 requires the IRS to use PCAs to collect inactive tax receivables. Accordingly, the IRS implemented a new private debt collection program in April 2017.

The IRS assigns only certain accounts to private debt collection agencies. These accounts involve “inactive tax receivables,” meaning any tax receivable:

  • That has been removed from the IRS’s active inventory for lack of resources or an inability to find the taxpayer;
  • For which more than one-third of the applicable limitation period has passed and no IRS employee has been assigned to collect the receivable; or
  • That has been assigned but more than 365 days have passed without interaction between the IRS and the taxpayer or a third party.

The IRS does not assign accounts to PCAs if the taxpayer is:

  • Deceased;
  • Under the age of 18;
  • In designated combat zones;
  • Victims of tax-related identity theft;
  • Currently under examination, litigation, criminal investigation or levy;
  • Subject to pending or active offers in compromise;
  • Subject to an installment agreement;
  • Subject to a right of appeal;
  • Classified as innocent spouse cases; or
  • In presidentially declared disaster areas and requesting relief from collection.

Only four PCAs are designated to collect the tax debt on behalf of the IRS: CBE, Conserve, Performant, and Pioneer. Taxpayers will be notified in writing by the IRS and the PCA when an account has been transferred from the IRS to a collection agency.

Because the IRS uses only these four designated PCAs to collect a specific type of tax debt, consumers must remain cautious if they receive debt collection calls pertaining to other types of tax debt.

Other Tips to Avoid Being Scammed

Concerned consumers who receive contact attempts from someone they suspect is impersonating the IRS and requesting money can take the following steps to avoid being scammed:

  • If you know you owe taxes or think you might owe, call the IRS at 1-800-829-1040. The IRS workers can help with a payment issue.
  • If you know you do not owe taxes or have no reason to believe that you do, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484 or at tigta.gov.
  • You can file a complaint using the FTC Complaint Assistant, choose “Scams and Rip-Offs” and then “Impostor Scams.”

 

If your credit has been damaged, learn how you can start repairing your credit here, and carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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Will My Credit Score Follow Me Abroad?

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Planning a move abroad, whether for employment, retirement, or a lifestyle change, raises a number of questions. Where will I live? What is the cost of living? Can I handle the culture shock?

While financial considerations play an important role in a decision to move abroad, many future expatriates wait until it’s too late to ask one vital question: Will my credit score follow me abroad? It’s an important query whether you have good or bad credit. But, the answer isn’t quite as simple as yes or no.

Put simply, your credit score won’t follow you abroad, but your payment history and debts will. Let’s take a closer look.

Credit Scores Vary from Country to Country

Your credit scores apply to your credit history in the United States and indicate your creditworthiness as a U.S. citizen. If you choose to move abroad, your current credit score will have little to no influence on your ability to borrow money in your new home country. That’s true whether you move to Toronto or Timbuktu.

That doesn’t mean other countries don’t use credit scores. Many do. Some countries’ credit scoring systems feel more familiar than others. Canada’s system, for example, shares many traits with the U.S.’s. Here’s a snapshot:

  • Canada’s two major credit bureaus are TransUnion Canada and Equifax Canada
  • Credit scores in Canada range from 300 to 900 (FICO and Vantage scores range 300 to 850 in the U.S.)

In the United Kingdom, simply registering to vote can help improve your credit score. Lenders use the Electoral Roll to confirm identifying information like your name and address. If you’re not on the Electoral Roll, your application could be delayed or even denied.

Your History Still Matters

Even though you won’t take your credit score with you, your credit past might as well be an extra piece of luggage — it’s coming too. Unless you plan on living exclusively from cash, you’ll need to secure a loan or credit at some point during your time abroad.

When applying for a new credit card or for a new loan outside of the U.S., your credit history will be examined by potential lenders. They might not look at your score, but they’ll still see the credit history that’s resulted in the score.

Maintaining Your U.S. Credit Rating

If you plan to return to the United States, or even visit frequently, be sure to maintain (or improve) your credit. Continue paying down those credit card accounts and any other loans you have. If you plan to keep or rent out your American home, ensure you’re still making timely mortgage payments.

With an eye toward returning, also make sure to keep your existing accounts active. Make purchases on Amazon or pay any recurring bills (Netflix, Prime, or other digital subscriptions) with your U.S. credit cards.

If you’re planning to move abroad, or have recently moved, and want to repair your credit, a lawyer can help. Lawyers understand consumer protection laws and can help leverage your legal rights so that your credit reports remain fair and accurate.

The lawyers and paralegals at Lexington Law can help you repair your credit. Contact us for a free credit repair consultation, including a complete review of your credit report summary and score.

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Preparing for Tax Season: Understanding How Taxes Affect Your Credit

The effect taxes can have on your credit

Most people don’t like paying taxes, and many people withhold far more tax money than they need too. That money has been called a tax free loan to the government, but withholding too much money as opposed to not enough may not be as irrational as some people would like to make it out to be.

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Who Is Responsible for Discovering Credit Report Errors?

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Many years ago, while in the process of purchasing my first home, I received notice from my mortgage broker that there were some listings on my credit report that would affect my ability to obtain financing for the home.

Up to this point in my life, I had never pulled my own credit report (this was before I became associated with Lexington Law Firm). After getting some pointers from my mortgage broker, I pulled a three-in-one credit report and discovered that there were indeed a couple of 30-day late listings on my report. I did not recognize the creditors and investigated further. During my investigation I found out that my father (who has the same first and last name but a different middle name) was a customer of these previously unknown creditors and had been late with his payment on a couple of occasions. These listings were erroneously placed on my credit report.

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