What Is Bankruptcy?

Bankruptcy is a legal process governed by federal law and implemented by federal bankruptcy courts. It can clear most forms of unsecured debt while providing creditors a measure of repayment.

Two types of bankruptcy are commonly used by individuals. They have several features in common:

• Filing triggers an automatic stay against creditors, which means that they can no longer legally seek collection against you.
• The process involves financial education, which can prevent the mistakes that led you to bankruptcy in the future.
• At the end of the process, the court will discharge eligible credit accounts. That means you’ll typically pay far less than your full balances. In many cases a debt will be completely discharged, which means you are no longer responsible for paying it.

Bankruptcy can’t erase every type of debt. It won’t help you with your secured debts: if you have a mortgage or a car loan the lenders can still seize your collateral. Student loans, alimony, child support, and tax debts will usually not be discharged in bankruptcy.

How to File for Personal Bankruptcy

Filing for bankruptcy is a complex legal process. Standing up and shouting “I declare bankruptcy” like Michael Scott in The Office won’t be enough.

Bankruptcy courts are run by the US Government, and the requirements and costs are consistent across the country. You will file with the Bankruptcy Court that has jurisdiction in your area.

Before filing for bankruptcy you will have to gather documents to verify your financial position.

Do not try to hide income or assets, or transfer assets out of your name. This is bankruptcy fraud. If you are caught, the court is likely to dismiss your bankruptcy. You could face criminal prosecution.

Once you’re ready to file, you’ll go through these steps.

1. Pay a filing fee
2. Determine which type of bankruptcy you will use
3. Take mandatory credit counseling courses
4. Complete and file complex legal forms with the court
5. Make a full and accurate disclosure of your income, assets, debts, and living expenses
6. Meet with a bankruptcy trustee and your creditors

Most people who go through the bankruptcy process retain a bankruptcy lawyer. A lawyer will represent you, guide you through the process, and answer your questions.

Many bankruptcy attorneys offer free initial sessions that will help you decide whether bankruptcy is right for you and what type of bankruptcy you will file. Bankruptcy is a complex topic and professional assistance will help you assess the advantages and disadvantages.

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Types of Personal Bankruptcy

There are six different types of bankruptcy, covering individuals, businesses, corporations, municipalities, and other entities. Each type is referred to by its chapter in the Bankruptcy Code.

Most individual bankruptcies fall into two Chapters.

Chapter 7 Bankruptcy

Chapter 7 Bankruptcy is the most common form of personal bankruptcy. It’s known as liquidation bankruptcy because it empowers a bankruptcy trustee to sell off your non-exempt assets. The trustee will use the sale proceeds to pay your creditors.

Some property is exempt from this sale. Generally, you’ll be able to keep the assets you need to live. That may include your house and car, clothing, and retirement accounts. Many Chapter 7 cases are “no asset” cases. That means there’s nothing with enough value to sell. In these cases debts are often discharged with no payment at all.

To qualify for Chapter 7 bankruptcy you’ll have to pass a means test. There are two ways to do this:

1. Your gross household income is below the state median.
2. You fail option one, but your disposable income isn’t enough to meaningfully pay back your debts.

The second option is significantly more complicated. Either way, you have to demonstrate to the court that you’re not capable of repaying your creditors. If you do not pass either test you will have to file for Chapter 13 bankruptcy.

The Chapter 7 means test stops high-income earners from abusing the bankruptcy system. If you fail the test, you will have to file under Chapter 13.

The Chapter 7 bankruptcy process normally takes four to six months. If you have few or no assets and your creditors do not dispute your bankruptcy it may take less time. Your unsecured debts will probably be discharged at the end of the process. You will no longer be responsible for paying them.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is for people who make too much money for Chapter 7 or want to protect their assets from liquidation. Instead of selling off your possessions to pay creditors, Chapter 13 creates a strict but affordable repayment plan. Chapter 13 bankruptcy is often referred to as reorganization bankruptcy.

You will have to provide the court with accurate and detailed information on your assets, income, expenses, and debts. The court will appoint a trustee to review your case, negotiate with your creditors, and design a repayment plan.

The repayment plan will last from three to five years, depending on your income, expenses, and debts. At the end of the plan, the court may discharge your remaining balances if you have faithfully complied with the plan. If you fail to comply the bankruptcy may be dismissed. You will be responsible for your debts again. Creditors can resume collection efforts.

Chapter 13 bankruptcy is a form of debt consolidation: you’ll only need to pay your bankruptcy trustee each month. The bankruptcy trustee will make payments to your creditors on your behalf.

Chapter 13 is usually the best option for people who have:

• Valuable non-exempt properties that might be sold under Chapter 7
• A steady income, especially one that’s too large to qualify for Chapter 7

Chapter 13 bankruptcy doesn’t include a means test. To qualify, you will have to hold less than $394,725 in unsecured debt and less than $1,184,200 in secured debt. These limits are adjusted frequently to keep up with inflation.

Because you will be paying off most of your debts, Chapter 13 bankruptcy has less impact on your credit than Chapter 7 bankruptcy. Chapter 13 will stay on your credit report for seven years and costs only $310 to file.

Learn more about Chapter 7 vs. Chapter 13 Bankruptcy

Who Should Consider Filing For Bankruptcy?

People who declare bankruptcy are usually under serious financial stress. That can be caused by a sudden job loss, medical bills, or an unexpected divorce. It can also be caused by excessive spending and poor financial management. A combination of these situations is often enough to push people over the edge.

The social stigma of bankruptcy can stop people from considering the positives of filing for bankruptcy. However, bankruptcy is more common than most people think. Bankruptcy statistics show that even though the total number of bankruptcies has declined over time, there were still 370,685 bankruptcy cases filed in the first three quarters of 2022 alone.

If you aren’t facing any unusual financial obstacles, your debt problems are likely due to poor financial habits or a lack of education. In that case, you might be able to make do with a less extreme form of debt relief.

Make sure you explore all of your other options before you start to consider bankruptcy. Try to refinance and lower your interest rates, consolidate your outstanding loans, and work with a credit counselor, even if you don’t think those will be enough. Give them an honest try before you declare bankruptcy. Bankruptcy has significant consequences and it should be considered a last resort.

As a general rule, you should consider bankruptcy if it would take more than three to five years to pay off your debts even if you devote all resources beyond bare survival to debt payment. If you’re not sure, consult a credit counselor or a bankruptcy attorney. Many bankruptcy attorneys offer a free initial consultation to help you decide whether to pursue bankruptcy.

Bankruptcy should be your last resort. Only consider it once you’ve exhausted all other debt relief options. 

How Much Does Bankruptcy Cost?

Bankruptcy involves two primary costs. The first is the fees. You will have to pay $338 to file a Chapter 7 petition and $313 to file a Chapter 13 petition. You may be able to pay these fees in installments. If your income is below 150% of the poverty line in your area the court may waive the filing fee. Credit counseling and debtor education classes also require fees, often between $15 and $35. Some providers may offer free courses for financially distressed individuals.

The largest cost of filing for bankruptcy is hiring a lawyer. The American Bankruptcy Institute says that average legal costs are around $1072 for a Chapter 7 bankruptcy with assets. If you file for a Chapter 13 bankruptcy the average cost is $2564. Costs may be lower if you have no assets. They may be higher if your bankruptcy is complex or if a creditor contests it. More experienced lawyers may charge higher fees. Legal costs in urban areas are often higher than costs in rural areas.

It is possible to file for bankruptcy without a lawyer. It is difficult and risky, and most experts advise against it. Bankruptcy is complicated, and only specialized bankruptcy lawyers will deal with it. If you file with no lawyer at all you could lose assets that could have been protected or even see your case dismissed.

Legal help is often expensive, and most people who file for bankruptcy have limited cash flow. If you can’t afford a lawyer, you might be able to get help from a local legal aid society or a pro bono attorney. Failing that, look for a lawyer who will allow you to pay them after your case is closed. Many bankruptcy lawyers offer flexible repayment plans.

If you’re filing a simple Chapter 7 bankruptcy Upsolve may be an option. It’s a free app that has been called “TurboTax for bankruptcy”. The app allows eligible users to complete bankruptcy forms without legal assistance. Learn more in our Upsolve Review!

The Legal Services Corporation (LSC) is a non-profit group put together by Congress to provide legal services to low-income Americans. Visit their website to find an LSC-funded organization near you.

The Consequences of Personal Bankruptcy

Bankruptcy has long-lasting consequences. Most notably, it will have a substantial negative impact on your ability to qualify for new credit.

While it’s impossible to calculate exactly how much your credit score will decrease, the drop will be dramatic. Even if failed debt-relief efforts and missed payments have already hammered your credit, you’ll still see a significant drop.

Having a bankruptcy on your credit report can also make applying for a new job or leasing a residence more difficult. That can make finding housing a challenge since a mortgage will be out of the question for a while.

You may also lose valuable property to pay off your creditors if you file with Chapter 7. If you file under Chapter 13, you’ll have to adhere to a rigid payment schedule for several years.

Failure to fulfill the requirements set by the court may result in a dismissal of your bankruptcy. You could end up right back where you started, and you won’t be able to file for bankruptcy again for at least a couple of years.

Bankruptcy Is Not The End

While there are significant repercussions to filing for bankruptcy, you will be able to recover eventually. It’s not a financial death sentence. You can improve your credit score over the next few years with responsible behavior.

Learn more about recovering financially after bankruptcy: Life After Bankruptcy: How to Rebuild Your Credit and Your Finances

Don’t let the fear of embarrassment lock you into a never-ending debt cycle either. Over 700,000 people filed for personal bankruptcy in the twelve months ending in March 2020. If you need to declare bankruptcy, you’re not alone.

The most important part of recovering from the process is avoiding the problems that caused you to file in the first place. Learn to build a budget, live within your means, and use credit responsibly.

Once you declare bankruptcy, your access to credit will be limited. Try not to see that as a punishment, but rather protection from overextending yourself again. With the proper outlook, patience, and discipline, bankruptcy can be the beginning of a more prosperous phase in your financial journey.

The post What Is Bankruptcy and How Does It Work? appeared first on FinMasters.

Important note: if you’re considering any tax relief company, manage your expectations. Nobody can make all tax debt disappear. Professional help may get you a better deal, but the outcome will depend on your situation. If you expect magic, you’re likely to be disappointed.

About Optima Tax Relief

Optima Tax Relief describes itself as the nation’s largest tax relief company. It claims to have resolved over $3 billion in client tax liabilities. 

The Company is based in Santa Ana, CA, and has offices in Scottsdale, AZ, and Chandler, AZ. Online services are available nationwide (except Colorado and Minnesota).

Optima Tax Relief employs an in-house staff of enrolled agents, CPAs, and tax attorneys. Some tax relief companies may pass your case on to an outside law firm and keep part of your fee.

Optima Tax Relief was founded in 2010 by Harry Langenberg and Jesse Stockwell, both of whom remain with the firm as managing partners.

How Optima Tax Relief Works

Optima Tax Relief will work with federal and state taxes, but state tax services are not available in all states. You need at least $10,000 in tax debt to qualify for their services.

Optima Tax Relief works with many types of tax problems, including the following.

• Tax liabilities
• Back taxes
• Levies and liens
• Penalties and interest
• Wage garnishment
• Tax settlement
• Audit Defense
• Payroll tax negotiation

The company uses a three-step process.

• Consultation. You will have a free initial consultation with no obligation. A representative will review your case, lay out your options, and give you a realistic assessment of what Optima Tax Relief can do for you.
• Investigation. Optima Tax Relief will communicate with the IRS, examine your records in detail, and choose appropriate resolution options. You will have to authorize access to personal financial records.
• Resolution. The company will pursue the selected options and try to bring you into full IRS compliance. This does not mean you will have no tax debt. The goal is to reduce your debt as much as possible and work out a feasible payment plan for the rest.

There are many ways to resolve tax debt, and you will work with Optima Tax Relief to select the ones most appropriate for you. Here are some of the options available.

• Installment agreements will not reduce your debts but will make them easier to pay off.
• Offer in compromise is available to taxpayers experiencing financial distress.
• Penalty abatement or adjustment can reduce the penalties charged for previous issues.
• Extension requests may give you more time to pay without incurring penalties.
• Disaster-related relief provides tax breaks for people affected by natural disasters.
• Coronavirus tax relief may be available at both federal and state levels.
• Currently not collectible status may apply if you have no income or assets with which to pay your tax debt.
• The statute of limitations may apply in some cases dealing with older tax debts.
• Innocent spouse relief applies to taxpayers who are being held liable for a spouse’s mistakes or transgressions.
• A tax lien discharge removes a tax lien from a specific property, which may allow you to sell that property.
• A bank levy release means the IRS will no longer seize funds from your bank account. It usually occurs when you have agreed to a payment plan or other settlement.

It’s important to note that all of these devices are open to anyone. You do not need a tax relief company to apply for them. However, the process of assessing your eligibility, choosing options that are likely to be approved, and applying can be complex and challenging. 

Professional assistance does not guarantee success, but it may improve the probability of success.

Availability

Optima Tax Relief provides federal tax relief services online in all states except Colorado and Minnesota.

State tax services are available online in all states except Arizona, Georgia, Delaware, and Connecticut.

The Cost of Optima Tax Relief: Is It Worth It?

Optima Tax Relief does not disclose pricing information on its website. Pricing information given here is sourced from third-party websites and customer reviews. Prices vary according to the specifics of your case and you may be quoted prices higher or lower than those discussed here.

Optima Tax Relief appears to assess fees at two stages of the tax relief process.

• Investigation: you can expect an investigation fee of $295.
• Resolution: Resolution fees can vary widely with the circumstances of your case. Reported fees vary from $995 to $5000 and may be higher for complex cases with large tax liabilities.

These fees are substantial, but they are consistent with fees across the tax relief industry. Optima Tax Relief isn’t offering a screaming great deal, but pricing appears to be fair relative to competitors.

While the overall pricing scheme appears to be fair, it is not transparent: there’s no consistent pricing formula disclosed on the company’s website. Some customer reviews contain complaints indicating that the customers believe they were overcharged, and some reviews report payments much larger than those referenced above.

Optima Tax Relief will refund payments for the investigation phase within 15 days after the initiation of the investigation phase. No refunds are possible after 15 days or for the fees paid for the Resolution phase.

Optima Tax Relief: Customer Reviews

Customer reviews are a useful tool, but they have limitations. It’s important to understand how to evaluate customer reviews. Some reviews may be based on unrealistic expectations, and some companies have been known to manipulate reviews.

Let’s look at what major review sites can tell us about Optima Tax Relief.

Better Business Bureau (BBB)

Optima Tax Relief has an A+ rating from the Better Business Bureau (BBB). BBB ratings are based on the company’s responsiveness to complaints, not on the average of customer reviews.

The BBB site lists 686 complaints closed in the last three years and 209 in the last 12 months. The company has responded to all complaints and most appear to be resolved to the customer’s satisfaction

Optima Tax Relief gets 3.88 out of 5 stars from a total of 1,164 customer reviews on the BBB site. The reviews break down into two categories, very positive and very negative, with very few in between.

It’s important to remember that the BBB tends to attract negative reviews, as it’s a place where people traditionally go to complain when they are not satisfied.

Trustpilot

On Trustpilot, Optima Tax Relief gets 4.1 out of 5 stars from 3,116 reviews. 89% of the reviews are five-star or four-star, and 9% are one-star, with negligible percentages in between.

Here are some typical positive reviews.

Here are a few sample negative reviews.

Results on most review sites seem to follow a consistent pattern: large numbers of positive reviews mixed with a smaller number of highly negative reviews. Most customers who leave reviews seem satisfied, but when things go wrong they seem to go seriously wrong.

Some of the negative reviews may come from customers who have unrealistic expectations, but this is impossible to ascertain. If you’re considering retaining Optima Tax Relief you should be aware that while reviews are generally positive there is a minority who have had very unsatisfactory experiences.

The Bottom Line: Is Optima Tax Relief Right For You?

Optima Tax Relief is a legitimate tax relief company with an extensive track record. Some customers have left negative reviews, but that’s true of almost any tax relief company, and the number represents a relatively low percentage of customer reviews.

Does that mean that Optima Tax Relief is the right choice for you? Maybe, maybe not. Even the best financial services companies aren’t always the right fit for a given client. To find out, ask yourself these questions.

• How much tax debt do you owe? Optima Tax Relief won’t consider your case unless your tax debt is $10,000 or above.
• Does Optima Tax Relief provide services in your state? If you live in a state that is not served by the company you’ll need to look for another option.
• How complex is your case? If you have a straightforward problem – for example, if you simply need to ask for an installment agreement or an extension – you might be better off doing it yourself. If you are overwhelmed even thinking about dealing with it, professional help is probably a good idea.
• Have you considered local alternatives? A tax attorney or firm in your area might offer you a competitive package, and you’d have personal contact. If you’re not comfortable dealing with a remote service or working through online customer service, this could be a better option for you.
• Have you shopped around? Comparing several alternatives is always a good idea when you’re in the market for a financial service. There are other tax relief companies out there, and most offer a free initial consultation. Comparing several offers is always worthwhile.

If you answered “yes” to all of these, you might be a good fit with Optima Tax Relief.

Remember that this is a nationwide company with many clients. Your interactions are not likely to be personal. A free initial consultation may feel like a sales call, and during the process, you are likely to be interacting with customer service representatives, not the tax experts doing the work.

If this is a problem for you, you might be better off consulting a local business or law firm with a physical presence in your area.

How We Rated Optima Tax Relief

Tax relief is a unique financial service. No tax relief company can change the tax laws or compel the IRS to cancel tax debts. Tax relief companies can only work with existing laws and policies, and their main service is simply cutting through the masses of red tape and detail that characterize tax problems.

It’s important to assess tax relief companies according to realistic criteria. This is how we evaluated Optima Tax Relief.

• Effectiveness. No tax relief company can make tax debt go away, but Optima Tax Relief has a solid record of achieving as much relief as is legally possible in a given circumstance. Not all customers are happy, but that is true of almost all financial services companies.
• Availability. No service will help you if it isn’t available to you. Optima Tax Relief provides federal tax services in all but two states and state tax services in all but four, resulting in a high score in this category.
• Customer Service. When you’re dealing with a firm that delivers its services online, customer service is important. You need to know that you can reach someone when you have a problem, and you want to do it without fighting your way through masses of automated call centers. Optima Tax Relief gets generally good reviews on this score, but there are a substantial number of complaints about contact and service issues, dropping the score in this category.
• Price. Optima Tax Relief does not disclose its pricing formula online. Third-party reports suggest that services are not cheap, but are analogous to those of competing firms.

We’ll repeat the recommendation that you should shop around before choosing any tax relief company. Comparison shopping can get you a better deal and give you confidence that you’ve selected the best partner for your specific needs.

The post Optima Tax Relief Review 2024: Are They Legit? What Do They Cost? appeared first on FinMasters.

What Is Debt Consolidation?

Any process that combines several debts into one can be considered debt consolidation. There are several common ways to do this, which we’ll discuss below.

There are two main advantages to consolidating your debts.

1. Consolidating your debt can make your financial life simpler. You may be making several payments on several debts, often on different schedules. If you’re not organized, you could easily miss a payment, which can hammer your credit and leave you paying extra fees. Consolidation makes it easier for you to organize your payment schedule by combining several debts into one payment. 

2. Consolidating your debts can save you money. If the combined debt carries a lower interest rate than the debts it replaces, you’ll pay less interest than you were paying before. You may also be able to pay off your loan faster because less interest will accumulate.

Debt consolidation is not a magic trick. You’ll still have the same amount of debt that you had before. Debt consolidation is designed to save you money via lower interest rates and help you organize your debts, and simplify your payment schedule. It will not make debts go away.

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How to Consolidate Debts

There are four main ways to consolidate debt. Each has advantages and disadvantages. You’ll have to decide which method is best for you…

Debt Consolidation Loans

A debt consolidation loan is a personal loan used to consolidate debt. You’ll take out a loan, use it to pay off your debts, and then pay the new loan. These loans may be unsecured or secured by personal property such as a car, a boat, or another financial account. They usually have terms of three to five years.

Interest rates on debt consolidation loans rates vary based on the lender, your credit score, and the collateral you are using. A secured loan will usually have a lower interest rate than an unsecured loan, but you’ll risk losing the collateral if you can’t pay the loan.

You’ll have to compare the cost of your new loan to the cost of paying off your existing balances. Work out the total costs and make sure you’re saving enough to make the deal worth it. If your credit is good or your loan is secured, you can probably get an interest rate well below the rates you are paying on credit card balances. Be sure to consider any fees that come with the loan: many loans have origination fees or other fees.

Debt consolidation loans are usually used to consolidate credit card balances. That’s because interest rates on credit card balances are very high, and it’s usually possible to get a loan at a significantly lower rate. If you wish to consolidate installment loans, it may be hard to get a better rate unless your credit has improved dramatically since you got the loans you want to consolidate.

You may get offers for consolidation loans in the mail, especially if you have several credit card balances. If you’re considering one of these offers, read the fine print carefully. There may be hidden fees or other unfavorable terms.

A debt consolidation loan can be a good option if your credit is good enough to qualify you for a low interest rate. If your credit is poor and you don’t have collateral that you’re willing to risk, you may not be able to get an interest rate low enough to be worth the effort.

Use our online Debt Consolidation Calculator to compare the cost of a consolidation loan to the cost of paying off your existing balances.

Balance Transfer Credit Cards

Another option is to transfer your debts to a credit card with a lower interest rate. Many credit card issuers offer balance transfer cards specifically designed for the consolidation of other credit card balances. These cards usually come with a zero-interest or low-interest promotional period.

To consolidate debt with a balance transfer card, you apply for the card, and if you’re approved, you transfer your other balances onto it. If you pay those balances off before the promotional period expires, all the money you pay will go toward the principal. That can save you a substantial amount on interest.

If you don’t pay off the balances before the promotional period ends, you’ll be right back to high interest payments.

You’ll need to have good credit in order to qualify for the best balance transfer credit cards and get approved for the best terms. Some balance transfer credit cards come with annual fees and balance transfer fees. You’ll have to do the math and determine whether you’re coming out ahead. Most credit card issuers will not allow you to transfer balances from their own cards, so you’ll have to use a different company than you’re using now.

If you do transfer your debt to a credit card with a balance transfer promotion, do your very best to pay the balance off before the promotion period ends. If you don’t pay the card off in time, you could end up paying high interest rates on the remaining balances.

HELOC Or Home Equity Loan

HELOC stands for Home Equity Line of Credit. Obtaining a HELOC or home equity term loan is another option for consolidating your debt. These loan products use your home as collateral for the loan. You’ll need to have equity in your home in order to qualify for them.

Home equity loans and lines of credit typically have very low interest rates, which is an attractive feature for people who want to use them to consolidate debt.  The downside is that if you default on a home equity loan or line of credit, you could lose your home. For that reason, it’s important to borrow wisely when using these types of loans for debt consolidation or anything else.

Be sure to make all of your payments on time, and consider working to pay the loan off early if you can.

Cash Out Refinance

A cash out refinance refinances the entirety of your mortgage balance then adds additional money. You’ll take those additional funds as cash at the loan closing and use them to pay off your debt. 

The benefit of this type of move is that you’ll only have one payment; your mortgage payment. And since mortgage interest rates are attractively low, you’ll then be paying a very low interest rate on your credit card debt.

However, if you structure your refinance to a long term, such as 30 years and don’t pay the loan off early, you’re effectively stretching your credit card payoffs to 30-year terms. That could leave you paying more interest in the long run despite the lower rate.

Mortgage refinances typically come with closing costs such as origination fees and filing fees. The fees could outweigh the benefit of the refinance. A good mortgage loan representative will be able to help you determine if the math makes sense for you to get a cash-out refinance mortgage loan.

You’ll have to meet credit score guidelines as well as equity guidelines to qualify for a cash-out refinance mortgage loan. Check with a reputable lender for details.

Debt Consolidation May Not Be Right for You

If you qualify for debt consolidation, it could be your best bet for long-term debt reduction. You’ll be paying your debts in full, so your credit should not be adversely affected as long as you make your payments on time.

Debt consolidation won’t work for everyone. If you don’t have good credit, you may not qualify for a debt consolidation loan or a balance transfer card. You won’t be able to use a HELOC, cash out refinance, or home equity loan if you don’t own a home.

If debt consolidation isn’t right for you, you have other debt relief options. You could consider credit counseling, debt management plans, debt settlement, and even bankruptcy. None of these methods is right for everyone, and all of them have drawbacks, but one could be right for you.

The Key to Success

All of these methods have one thing in common: None of them will work if you run up more debt before your old debts are paid off.

Before you consolidate your debts, take a close look at the habits that created those debts in the first place. You’ll have to change those habits if you want consolidation to succeed. Set up a budget, follow it, and minimize credit card spending. Consolidating your credit card debts won’t help if you pile up new credit card balances!

If you don’t make healthy changes to your spending patterns after obtaining a debt consolidation loan, you could end up paying more on your consolidation loan and paying off more credit card balances as well. Debt consolidation can help you get your debts under control. If you want to keep your debts under control, you’ll have to take control of your finances and spend less than you earn!

The post What Is Debt Consolidation and How to Consolidate Debts appeared first on FinMasters.

What is Upsolve?

Upsolve has been described as “TurboTax for Bankruptcy”. It’s an app that helps users through the bankruptcy filing process. The app asks simple, plain-language questions and uses the answers to fill up the numerous and complex forms needed for a bankruptcy filing. The app will warn you if your information is inconsistent or incomplete, and it may advise you to consult an attorney.

The result is a process that helps resolve one of the fundamental contradictions of bankruptcy: the people who most need it can’t afford it.

Many people who need to file for bankruptcy can’t afford a lawyer: they are, after all, bankrupt. Many people who try to file without legal help have their filings dismissed or have unfavorable resolutions. Upsolve provides the assistance needed to file a simple Chapter 7 bankruptcy on your own.

Upsolve only deals with Chapter 7 bankruptcy, the type most commonly used by low and middle-income Americans. Some users may still require legal assistance, especially for more complex cases.

Upsolve doesn’t stop with filling out forms. The app also coaches users through 341(a) meetings with their bankruptcy trustees. It will advise users if their information is incomplete or inconsistent, and it will suggest legal help if it’s needed.

The app also provides vital financial education and a forum that allows users to communicate with others who are considering bankruptcy, are in the bankruptcy process, or have completed bankruptcy.

Communication with other people in the same position can help reduce the stigma that many people feel about bankruptcy, which is often seen as evidence of financial failure and even irresponsibility.

Upsolve founder Rohan Pavuluri has an interesting thing to say about his product: he thinks it shouldn’t have to exist. Pavuluri believes that legal processes designed for financially stressed people should be automatically available without excessive costs. Since that’s not the case, the Upsolve team created their app as a step in that direction.

Upsolve is a non-profit corporation supported by grants from the US Legal Services Corporation, private donors, and pro-bono bankruptcy lawyers. The use of the app is completely free. You will still have to pay court fees, though the app can assist you in requesting a waiver.

Upsolve has been available since 2019 and has helped to clear over $615 million in debt.

How Does Upsolve Work?

Upsolve will only work with cases that are eligible for Chapter 7 bankruptcy. If your gross household income is above your state’s median and your disposable income is enough to pay your debts, you may not qualify for Chapter 7 bankruptcy.

If you’re not sure what type of bankruptcy is right for you, read this review of Chapter 7 vs Chapter 13 bankruptcy.

Bankruptcy could be your best option if there is no realistic way for you to pay your debts and your debts are dischargeable in bankruptcy. Debts like medical debt, credit card debt, payday loans, and personal loans can generally be discharged in bankruptcy. You won’t have to pay them once you complete the process.

Alimony, child support, most recent tax debt, most student loan debt, and some other debts cannot be discharged in bankruptcy.

The Process

The Upsolve site contains an abundance of educational materials. You can get familiar with the bankruptcy process and get a better sense of whether it will work for you.

If you have determined that Chapter 7 bankruptcy is your best bet, you can follow this process.

• Take the assessment. There’s a simple assessment process on the Upsolve website that will determine whether Upsolve is a good fit for your particular case.
• Supply information. You’ll fill out a questionnaire and upload some documents, including your last two tax returns.
• Complete a credit course. This 60-minute course is a requirement for bankruptcy.
• Review your forms. Upsolve will complete the forms using the information you have provided. You’ll review the forms to ensure that they are accurate.
• File the forms. You will file the forms with the court clerk’s office at the bankruptcy court that serves your area.
• Take a second course. This 60-minute course is also a requirement for completing the bankruptcy process.
• Watch a “what to expect” video. This will prepare you for your meeting with your bankruptcy trustee. This will be a mandatory in-person meeting that will take place about a month after you file.

Some users may choose to have an attorney review their forms. This allows personal advice based on the specifics of your case. You’ll pay for this, but the fee will be much lower than the fee for preparing all of the forms.

The Upsolve forum is available at all times to provide both emotional and practical support.

Upsolve User Reviews

Upsolve is a new company, but the customer reviews online are uniformly excellent.

On Google Reviews Upsolve has 1,259 reviews with an average score of 4.9.

On Facebook, Upsolve has 212 reviews with an average score of 4.9. More examples:

Some companies achieve great review records by planting reviews on popular sites. Because Upsolve is a free-to-use non-profit, they have little incentive to do this. That makes the review record even more impressive.

Reviews from Industry Professionals

Upsolve also gets top reviews from industry professionals, including current and retired bankruptcy court judges.

Given that we’ll never be able to provide a free lawyer to everyone who needs one, particularly during the tidal wave of bankruptcies expected due to COVID-19, we must create a system that empowers individuals to access the rights they’re guaranteed when they cannot afford legal fees.

Judge Robert Gordon, Ret. U.S. Bankruptcy Judge for the District of Maryland

The income tax system is extremely, extremely complex. Much more complex than the bankruptcy code. But yet we have TurboTax…I don’t understand why we can’t do something similar to that for simple Chapter 7 bankruptcies.

Judge Henry Callaway, Chief U.S. Bankruptcy Judge for the Southern District of Alabama

Upsolve plays a critical role in making sure that people who can’t afford a bankruptcy lawyer are still able to access the bankruptcy system. It’s an important part in promoting equal rights under the law.

Ed Boltz, Former President of the National Association of Consumer Bankruptcy Attorneys

All quotes sourced from Upsolve.

Independent bankruptcy attorney Julie Kreutzer, who is not associated with Upsolve, had this to say.

I just consulted with a client who wanted me to review and comment on the forms Upsolve software generated and give him advice afterwards on a variety of issues.  I felt Upsolve did an excellent job and am quite impressed…

There is a quantum difference between paying an attorney like me somewhere around $350.00 to consult after using Upsolve vs. $1-2,000 or more for full representation…

Upsolve opens up a new world for debtors who can’t afford to retain an attorney, though I recommend having an experienced attorney review the forms to make sure they are accurate, advise on red flag issues and coach the client on issues like how to deal with a 341 hearing.

Source: The Law Offices of Julie Kreutzer

The combination of positive reviews from both users and industry professionals indicates that Upsolve is certainly worth considering if you need to file for a basic Chapter 7 bankruptcy.

Alternatives to Upsolve

We know of no apps or websites that provide services similar to Upsolve’s. That leaves three alternatives if you’re considering bankruptcy.

• Avoid bankruptcy. You may be able to pay off your loans without bankruptcy, but it could be a hard road. If there is no realistic way to pay your debts bankruptcy could be your only option.
• Do it yourself. Some people do file for bankruptcy with no assistance. This is risky. Mistakes could mean losing assets that you might have kept or even having your case thrown out and forfeiting your court fees.
• Hire a lawyer. Hiring an experienced bankruptcy attorney to handle your case is the best way to handle bankruptcy, but the cost is considerable and many people who need bankruptcy simply can’t afford it.

If you can’t possibly pay your debts and you can’t afford a lawyer, Upsolve is an excellent option. It’s free, so there’s nothing to lose by filling out the initial questionnaire and seeing what Upsolve has to offer.

Conclusion

Upsolve is a unique entry into the online financial services world. It’s a non-profit and it’s completely free to use. The stated goal of the founders was to make bankruptcy accessible to those who most need it, and it appears to be succeeding.

Bankruptcy is not something to take lightly. The process is complex, even with help. Be especially careful if you have ongoing medical expenses: you won’t be able to file for bankruptcy again for eight years.

Bankruptcy will remain on your credit report for up to ten years. It has a severe impact, but most people who file for bankruptcy have severely damaged credit before they file. Many people who file have better credit a year after bankruptcy than they did before it.

Bankruptcy is not a financial death sentence or an admission for failure. It’s a chance at a fresh start. Many creditors recognize that bankruptcies can be caused by factors outside your control, like medical bills or job loss, and are willing to deal with people who have emerged from bankruptcy.

Most bankruptcies in the US are fairly simple Chapter 7 filings made by people with minimal assets. The filers are typically people in the low to middle-income brackets. Upsolve is designed to make these filings easier and cheaper, and it seems to achieve that goal very well. The site contains a wealth of information about personal finance and the bankruptcy process, and if you’re considering bankruptcy or you’re under severe debt stress it is well worth a visit.

The post Upsolve Review 2024: Making Bankruptcy Affordable appeared first on FinMasters.

Relationship Between Average Income in the State and the Rate of Bankruptcy

States with a low median household income experience higher rates of personal bankruptcy filings.

For example, Alabama has the highest rate of bankruptcy filings, more than twice the national average, and its median household income is more than $10,000 less than the national average.

On the other hand, states with extremely high median household income report very low personal bankruptcy rates.

For example, Washington, DC, has the highest median household income, more than $20,000 above the national average. The rate of bankruptcy filings (i.e., bankruptcy petitions per capita) is among the lowest (42% lower than the national average). 

The chart below provides the clearest illustration of the relationship between average income in the state and the bankruptcy rate. The average income in the state has an inverse association with the bankruptcy rate: bankruptcy rates go up when average income reduces.

The post Personal Bankruptcy Statistics for 2024: States, Causes & Cost appeared first on FinMasters.

You cannot be sentenced to prison for debt: the US abolished debtors prisons in 1833. The fear of incarceration for unpaid debts persists because legal loopholes have led to people facing jail time over unpaid debts.

In this article, we will examine the surprising ways this can happen and offer guidance on how to avoid such extreme consequences.

Today, you cannot be sent to prison for a consumer debt (tax debt, alimony, and child support are another story). Despite this, some people are still finding themselves facing – and even serving – jail time for unpaid debts.

How is this possible?  Let’s take a closer look at how it happens and how you can avoid it.

Back Door Tactics To Jail Consumers For Unpaid Debts

In today’s world, you cannot go to prison for failure to pay a civil debt, such as a credit card, medical bill, or payday loan.

So how do debtors still end up in jail?

Bench Warrants And Contempt Of Court Rulings

You won’t go to jail for not paying a debt. You can be jailed for disobeying a court order or even for failure to appear in some cases. Today’s debt collectors use that opening to threaten and even impose jail time through bench warrants and contempt of court rulings. 

Bench Warrant: A warrant issued by a judge or court ordering the arrest of a person who has failed to appear in court as directed

Contempt of Court: A court order which, in the context of a trial or hearing, declares a person to have disobeyed or been disrespectful of the court’s authority.

These devices are increasingly used by debt collectors, often with the cooperation of judges, to threaten and even jail debtors.

How Debt Collectors Use Bench Warrants And Contempt Of Court Rulings To Collect Debts

Debt collectors can’t ask a court to jail a person specifically for an unpaid civil debt. They can and do use bench warrants and contempt of court orders to have borrowers arrested. Here’s how it works. 

1. A debt collection agency files a lawsuit against you seeking repayment of an unpaid debt.
2. If you fail to appear in court to defend yourself, a summary judgment may be issued against you. A judgment may be issued with no regard for the facts of the case. The collector won’t even have to prove that you owe the debt.
3. If a summary judgment is issued, you may be summoned to face post-judgment court proceedings. If you fail to appear, you may face a bench warrant or a contempt judgment.

Contempt of court is a jailable charge in many states. A judge could issue a warrant for your arrest for violating your order to appear in court. 

The problem with this process is that many debt collectors don’t even have to prove that a debtor actually owes the debt when they file suit, nor do they need to have current contact information for debtors.

Many debtors never receive a summons, either because address information is inaccurate or because the debt collectors resort to “sewer service”: deliberately failing to deliver a summons.

Some collectors schedule repeated hearings during working hours, hoping that a debtor will fail to appear.

Debt collectors file court cases over thousands of unpaid debts every year. Many of them are relatively small: never assume that a creditor won’t sue you because your debt isn’t big enough. Increasing numbers of collection cases are filed over medical debts, including debts for ambulance services[1]. Judges may set bail at the debt amount and turn the bail money over to the collector.

How To Avoid Going To Jail For Unpaid Debts

There are steps you can take to avoid going to jail for your unpaid debts.

1. Keep Track Of What You Owe And To Whom

Keeping track of what you owe and to whom you owe it is important if you want to avoid going to jail for debt. The easiest way to do this is to get your free copy of your credit report each year. 

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When you visit www.AnnualCreditReport.com they’ll give you one free copy of your credit report from each of the three major credit reporting bureaus: TransUnion, Experian, and Equifax. 

Pull your annual free credit report copies and assess them thoroughly for any unpaid or collection reports. If you find a collection report or unpaid bill, work with the collection agency or the lender to resolve the debt as soon as possible. Be sure to learn how to read a credit report, and keep an eye out for errors.

Try to work out a payment arrangement or a debt settlement if the debt is legitimate. Do your best not to avoid the debt and tempt the collection agency to file a lawsuit. 

2. Work To Keep On Top Of Current Debt Payments

If you have current debts, work hard to keep payments on those debts up to date. Do everything in your power to avoid getting behind on debt payments. 

If for some reason you can’t make a payment, call the lender immediately and explain the situation. Work out an agreement to help you get back on track. Get the agreement terms in writing for your protection. 

If you find you’re having trouble keeping up with your bills you may want to explore possible debt relief options for help. If you owe medical debts, be aware of the special rules surrounding medical debt and your options for getting help with medical debts.

3. Respond Quickly To Any Court Notices

If you do get an order to appear in court over a debt be sure to respond to the summons and attend the hearing. Although attending a court hearing can be intimidating, it will give you a chance to tell your side of the story and explain your position. 

Knowing your side of the story will give the presiding judge more information. If the judge doesn’t know your side of the story, they’ve only got the debt collector’s side of the story with which to make a decision.

As many as 70% of debt collection cases end in default judgments, mainly because defendants fail to appear^[2]. Many collection agencies assume that you won’t appear and may not be prepared to actually prosecute a case. Simply showing up and demanding documentation of your debt can be enough to get a case dismissed if the collector doesn’t have the appropriate documents ready.

By attending any court hearings you get a chance to defend yourself. You can show the judge that there is another side to the story the debt collection representative will share.

4. Get Legal Representation If You Can

If you are defending yourself against a lawsuit it’s important to get legal representation if you can. A good lawyer will know whether the lawsuit filed against you is legit, and what you can do about it. 

Know that while legal representation can be costly, there are ways to get affordable legal assistance. Reach out to an affordable attorney for advice and representation if possible. 

Having someone on your side who knows the law can make the court process much more bearable and dramatically increases your chances of a positive outcome^[3]. 

Don’t Let it Happen to You

All over the country, ordinary Americans are finding out that warrants have been issued for their arrest over debt-related cases, sometimes for cases they never knew existed. The people most likely to fall victim to these practices are often those least able to defend themselves.

This trend is an issue that requires attention on both the national and state levels. On an individual level, though, we can protect ourselves by responding proactively to any debt-related situation. Pay if you can, negotiate if you can’t. Try to deal with original creditors and avoid having accounts sent to collection agencies. If an account is in collections, try to negotiate a payment plan or settlement. If you are sued, respond at once, appear when ordered to do so, and do your best to find free or low-cost legal help. Making yourself a difficult target – and merely showing up with a lawyer may be enough to achieve that – may persuade a collector to go after someone else instead.

The best way to handle a debt lawsuit is to prevent it. If you can’t prevent it, don’t ignore it. That’s the surest route to a default judgment and potentially a warrant. It’s a hard thing to face, but defending yourself is still the best option!

The post Can You Go To Jail For Debt? appeared first on FinMasters.

People with heavy debt loads often become desperate, making them prime targets for these scams. These fraudulent schemes charge fees without delivering results, leaving you no better off and potentially in a worse situation. Understanding the tactics of debt scammers is essential for protection. In this article, we’ll explore common scams and strategies to avoid them.

Breaking Down the Scams

There are several scams to watch for. Keep in mind that scammers may not always proposition you directly. They may put out very convincing, carefully crafted ads online or through social media promising relief services that inspire you to reach out for help.

A company isn’t legitimate just because it buys ads!

Debt Relief Scams

A company is claiming that they can get you out of debt by negotiating with creditors on your behalf. They promise that they can get your debts lowered or forgiven if you provide some personal information. They claim an impressive track record and present dramatic testimonials claiming that they reduced or eliminated debt for other clients. It sounds like a great deal, but it’s time to be careful.

These companies will charge you up front, take your money, then disappear without taking any action on your behalf at all. Some may “try” to get your debt reduced using very basic, inefficient methods just to be able to say that they offered services, even though they know their techniques are useless. Most of what they do (if they do anything at all) you could do yourself at no cost.

Auto Loan Scams

If you’re overwhelmed by car payments, companies that promise to help you work out a loan modification for your auto loan may seem appealing. These companies target people who are at risk for vehicle repossession. Unfortunately, the story is almost always the same. The victim will pay a fee to the scammer before realizing that the scammer has vanished into thin air. Some may stick around to try to extract more money from you under the guise that they are still “working on your case”.

Credit Repair Scams

Credit repair scams prey on your desire to build back your credit after encountering some financial hiccups. Scammers will often promise customers that they can remove legitimate negative information from credit reports. In reality, this is impossible to do.

Victims of these scams pay scammers money in the hopes that they can boost their credit scores and their access to credit. They end up discovering that their credit reports remain unchanged and their money is gone.

How to Spot #DebtRelief and #CreditRepair Scams

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Repairing damaged credit takes a long time and anyone who promises quick and easy solutions is probably a scammer. Instead of falling for credit repair scams you should focus on legal and effective methods of rebuilding damaged credit that actually work.

Telltale Signs of Debt Scams

While debt scammers can be subtle, they often display some red flags that are easy to catch if you know what to look for. Remember that you have every right to ask questions before you agree to work with a company. Any sense that you’re being rushed is a big red flag. Unrealistic promises are an even bigger red flag. Watch out for these tactics.

• The company contacts you. Most legitimate services do not initiate contact with potential clients.
• The company refuses to send you the specifics of the services being offered to you until you provide personal financial information. Scammers often want access to your bank account numbers, credit card numbers and available balances.
• The company asks you to pay fees ahead of time. This means you’re making payments before you’ve received any actual relief.
• The company tells you to stop communicating with creditors entirely.
• The company appears to use the same one-size-fits-all technique for every client. Real credit relief should be tailored for the needs of each person.

Some scammers may try to get you to pay upfront costs by saying that they are charging for “counseling” services for your debt. This is still a red flag. Legitimate counseling services will offer introductory sessions at no cost. Some scammers will present the upfront fees as “voluntary payments” to make it seem as though they aren’t pressuring you because they know you are likely to feel obligated to pay for services.

How Can You Avoid Debt Relief and Credit Repair Scams?

Awareness is the first step to avoiding scams. If you know they’re out there they are easier to spot.

Debt Relief

You don’t necessarily need help from a professional to try to get out of debt on your own. Here are some steps to take if you’re having difficulty with making debt payments:

• Learn about legitimate debt relief and debt settlement options.
• Decide whether you want to pursue debt relief on your own or seek outside help.
• If you decide to seek help, try a reputable credit counseling service first. Most offer free initial sessions so you have nothing to lose.
• If you decide to use a for-profit debt relief or debt settlement company, check the company’s reputation first.
• Ask for a written disclosure detailing all setup fees, service fees, maintenance fees, and any others.
• Look for information on legitimate companies using the National Foundation for Credit Counseling’s website.

There’s no easy road to debt relief, but facing facts and getting started will do you more good than falling for impossible promises!

Credit Repair

If your focus is on repairing your credit history, start by pulling your credit report for free once per year from each of the three main credit-reporting agencies (Equifax, Experian and TransUnion). You can get negative information removed from your credit report if that negative information is erroneous or inaccurate. You can do this yourself. Your credit report will contain instructions for filing a dispute. You can also open a dispute with the business that made the inaccurate report against you.

It is impossible to have a legitimate mark on your credit history removed. Anyone who promises that they can remove a legitimate negative item from your report is not being honest.

Credit reporting agencies do not need to have an original signed contract or any other such document, and you cannot get legitimate items removed from your report with a so-called “609 dispute letter” or any other magic trick.

Most negative information stays on your credit reports for seven years from the date that the account first became delinquent and was not subsequently brought up to date. Credit scoring models place more weight on recent information, so your negative records will have less impact on your credit as years go by.

In some cases, you may be able to petition your creditor to remove negative information from their reports tot the credit reporting agencies. You may be able do this by offering a payment in exchange for a deletion. If you’re unable to pay, you may be able to convince a creditor to retract the negative information as a goodwill gesture. The decision is entirely up to your creditor in both cases. There is no guarantee that the credit reporting company will remove any prior record of the account.

How Much Is Too Much to Pay for Debt Relief Services?

A company is not necessarily fraudulent just because it charges fees. Asking for a large amount of money is a sign of trouble, especially if the company wants payment upfront. The US Department of Justice, citing the Consumer Federation of America, says consumers should only be paying about $50 for setup fees. Maintenance fees for an ongoing account should not exceed $25^[1].

What Can You Do if You’ve Been Scammed?

What should you do if you’ve lost money to a debt scammer? If you encounter debt relief and credit repair scams, consider reporting the company. You can help to prevent scammers from harming anyone else. Always keep copies of your reports. If the scammer’s actions have created additional problems with your creditors the documentation may help you resolve them.

Here’s where to report your information.

• The Consumer Financial Protection Bureau (CFPB).
• The Federal Trade Commission (FTC).
• The attorney general’s office in your state.

You can also consider reporting a scam to your local police. This may not get you very far if the scammer communicated with you over the phone or the Internet. Companies that operate debt scams are not always located in the United States. This can make it very difficult for local authorities to track them down.

If you think you’ve been scammed, it’s important to check in with your creditors to see if any extra damage has been done. In many cases, scammers will advise their victims to stop making payments on their debt. This can mean that you’re even farther behind in payments than you realized.

If you’ve been targeted by one scammer, you’re likely to attract others. Your name and contact details may be on a database of potential targets. These lists are often sold to multiple scammers. Be aware and be careful.

If you provided personal information to a scammer, such as an account and credit card numbers, you may be at risk of identity theft. Consider placing a fraud alert on your credit reports (which you can do for free) or retaining a credit monitoring or identity theft protection service (which will cost money).

The Golden Rule

Avoiding debt and credit repair scams is not much different from avoiding any other scam. The golden rule still applies:

It may be nice to hear that someone can make your debt “magically disappear” if you pay a large upfront fee, but that doesn’t mean it will actually happen. It may not be so nice to hear that you’re going to have to cut your spending, try to increase your income, and apply a lot of discipline for quite a bit of time to get out of debt, but the person giving you that message is being much more honest and is much more likely to have your interests in mind. Sometimes the news you want to hear isn’t the news you need to hear!

The post How to Spot Debt Relief and Credit Repair Scams appeared first on FinMasters.

Debt settlement can help you break out of a desperate debt situation, but the process has serious drawbacks. It’s important to understand the debt settlement process before making a decision. In many cases, bankruptcy may be a better option.

Unfortunately, there are many dishonest companies in the debt relief industry, so it’s essential that you choose a provider carefully. To help you avoid scam artists, we’ve found the five best debt relief companies in 2024.

Required Reading: Debt Settlement: How It Works, Pros & Cons

Best Debt Relief Companies in 2024 Compared

Here are our favorite debt relief companies in 2024:

1. National Debt Relief – Best Overall
2. Freedom Debt Relief – Best For Credit Card Debt
3. Accredited Debt Relief – Best For Quick Results
4. JG Wentworth – Best for Customer Service
5. CuraDebt – Best for Tax Debt Relief

BEST OVERALL

National Debt Relief

• Prices: 15% to 25% of the enrolled balance
• Minimum balance: $10,000
• Allowable debts: Unsecured accounts
• Length of program: 24 to 48 months
• Approximate savings: 46% of the enrolled balance before fees; 25% after fees
• Founded in: 2009
• BBB Rating: A+
• BBB Score: 4.59/5 stars (1,617 Reviews)
• TrustPilot Score: 4.7/5 (35,979)
• Accreditations: AFCC, BBB

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BEST FOR CREDIT CARD DEBTS

Freedom Debt Relief

• Prices: 15% to 25% of the enrolled balance
• Minimum balance: $7,500
• Allowable debts: Unsecured debts
• Length of program: 24 to 48 months
• Approximate savings: Not disclosed
• Founded in: 2002
• BBB Rating: A+
• BBB Score: 4.36/5 stars (1,328 reviews)
• TrustPilot Score: 4.5/5 (37,895 reviews)
• Accreditations: AFCC, BBB, IAPDA

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BEST FOR QUICK RESULTS

Accredited Debt Relief

• Prices: 15% to 25% of the enrolled balance
• Minimum balance: $10,000
• Allowable debts: Unsecured debts
• Length of program: 12 to 48 months
• Approximate savings: 45% of enrolled balance before fees
• Founded in: 2011
• BBB Rating: A+
• BBB Score: 4.82/5 stars (240 Reviews)
• TrustPilot Score: 4.8/5 (4,382)
• Accreditations: AFCC, BBB

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BEST FOR CUSTOMER SERVICE

JG Wentworth

• Prices: 18% to 25% of the enrolled balance
• Minimum balance: $10,000
• Debt specialty: Unsecured debts
• Length of program: 24 to 48 months
• Approximate savings: 51% of the enrolled balance before fees
• Founded in: 1991
• BBB Rating: A+
• BBB Score: 4.25/5 stars (133 reviews)
• TrustPilot Score: 4.8/5 (4,283 reviews)
• Accreditations: AFCC, BBB

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BEST FOR TAX DEBTS

CuraDebt

• Prices: About 20% of the enrolled balance
• Minimum balance: $5,000
• Allowable debts: Unsecured debts; tax debts
• Length of program: 24 to 48 months
• Approximate savings: 50% of the enrolled balance before fees; 30% after fees
• Founded in: 2000
• BBB Rating: A+
• BBB Score: 4.81/5 stars (21 reviews)
• TrustPilot Score: 4.1/5 (11 reviews)
• Accreditations: AFCC, IAPDA

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National Debt Relief

Best Overall

Why We Chose It: National Debt Relief (NDR) is one of the most reputable debt settlement companies in the United States. Founded in 2009, it’s already received more positive reviews than almost all of its competitors. NDR averages nearly five stars on the BBB and TrustPilot and holds accreditations with the AFCC and the BBB.

In addition, NDR has a highly engaged customer service team. When customers encounter issues and leave complaints on review sites, NDR reaches out to rectify the situation within a few days at most.

NDR is also transparent about its prices and track record. It shares several examples of successful programs with real customers and discloses the average customer’s savings before and after fees. Those are approximately 46% and 25%, respectively.

How It Works: NDR specializes in debt settlement services, and its terms align with industry standards. You must have at least $10,000 in debt to sign up, and most unsecured debts are eligible, including credit cards, personal loans, and medical bills.

After applying, you undergo a free consultation with a debt expert, who will get more detail on your situation and discuss your options. Next, they’ll recommend a personalized debt settlement plan and monthly payment, subject to your approval.

If you decide to move forward, NDR aims to settle your debts in 24 to 48 months. You won’t pay anything until it settles with each of your creditors, at which point NDR charges 15% to 25% of the initial enrolled balance.

NDR works with customers across the country, but its services aren’t available in every state. Unfortunately, it doesn’t share which states it operates in, so ask about availability during your initial consultation.

Freedom Debt Relief

Best For Credit Card Debt

Why We Chose It: Freedom Debt Relief (FDR) is another top-tier debt relief company with an exceptional reputation. Founded in 2002, it has thousands of positive reviews on its BBB and TrustPilot pages. Its average rating is slightly lower than NDR’s but still well above four stars, and its customer service team responds to complaints quickly.

In addition, FDR has served over 850,000 clients since opening its doors, resolving more than $15 billion in debt. It also holds accreditations with the AFCC, the BBB, and the International Association of Professional Debt Arbitrators (IAPDA).

How It Works: FDR offers debt settlement services, but its terms are more flexible than others in the industry. Most notably, you may qualify with only $7,500 of debt, making them an attractive option if you fall just short of the typical $10,000 threshold.

FDR accepts most unsecured accounts, but it specializes in credit cards. That may indicate that they have closer relationships with card issuers than other providers, which could benefit you if you’re primarily struggling with credit card debt.

FDR’s enrollment process involves filling out an online application and scheduling a consultation with one of their specialists. They’ll help determine whether a debt settlement program could save you money.

If you agree to a program, FDR will try to settle your outstanding accounts in 24 to 48 months. As with NDR, you’ll only pay when FDR reaches an agreement with your creditors, and the fees range from 15% to 25% of the original enrolled balance.

FDR’s services are available in most states but not all of them, so you’ll have to double-check whether you’re eligible during your consultation.

Accredited Debt Relief

 Best For Quick Results

Why We Chose It: Accredited Debt Relief (ADR) is a well-established debt settlement company with a solid reputation. It started doing business in 2011 and has a nearly five-star average on its BBB and TrustPilot pages.

It’s received significantly fewer ratings than National and Freedom Debt Relief, but there are still thousands of reviews in total. In addition, ADR holds accreditations with the AFCC and the BBB.

ADR’s customer service team is also proactive about addressing problems its customers encounter. They consistently respond to what few complaints customers leave on their crowdsourced review pages within days.

Finally, ADR is transparent about the average customer’s approximate savings based on your initial debt amount – approximately 45%. However, it doesn’t disclose what you can expect to save after the company’s fees.

How It Works: ADR offers debt settlement services, and its terms are close to standard for the industry. For example, you must have at least $10,000 in unsecured debts for them to negotiate on your behalf.

However, unlike most of its competitors, ADR advertises that its programs can be as short as 12 months. If you want to get out of debt as fast as possible, it may be a better option than most, though there’s no guarantee you’ll see such quick results.

If you meet ADR’s requirements, you can apply online and schedule a free consultation with one of its debt specialists. They’ll review your finances and explore your debt relief options with you.

That includes the ADR program and its fee structure, which should sound familiar. In accordance with federal law, ADR won’t charge you until they reach a settlement with your creditor. At that point, its fees range from 15% to 25% of the enrolled balance.

ADR is another national debt relief company that doesn’t publicly disclose which states it operates in, so you’ll have to inquire about eligibility when you have your initial consultation.

JG Wentworth

 Best for Customer Service

Why We Chose It: In addition to creating an iconic jingle that’s been stuck in my head for 20 years, JG Wentworth is one of the oldest and most well-respected debt settlement companies in the United States.

Founded in 1991, it’s maintained a reputation for top-tier customer service for over three decades. It receives five-star ratings from thousands of people, replies to all negative reviews, and has accreditations with the BBB and the AFCC.

Many reviews praise JG Wentworth for going above and beyond to make customers feel safe and respected. You can keep the same representative throughout your journey and even communicate with them via text message.

JG Wentworth is also transparent about the realities of debt relief. It informs prospects immediately that creditors aren’t required to negotiate and that settlement is a last-ditch effort to avoid bankruptcy.

In addition, JG Wentworth shares that the average client saves 51% of their total debt balance through its program. However, that doesn’t include the company’s fees.

How It Works: JG Wentworth made its name purchasing structured settlements, converting consumers’ payments into a lump sum. It now offers debt settlement services.

If you have $10,000 in unsecured accounts, you can fill out an online application, and a representative will contact you for a free consultation. They’ll assess your eligibility and propose a debt relief program.

Should you accept, you’ll start making monthly payments into a dedicated account, and JG Wentworth will negotiate on your behalf. You can monitor your progress through an online portal and receive updates from your representative. Programs last 24 to 48 months, and fees are 15% to 25% of the initial enrolled balance, due upon settlement.

JG Wentworth’s services are unavailable in CT, GA, HI, IL, KA, ME, NH, NJ, OH, RI, SC, and VT. However, JG Wentworth will refer prospects from those states to law firms that provide debt relief services in their area.

CuraDebt

 Best for Tax Debt Relief

Why We Picked It:  CuraDebt has been in business for 23 years, opening its doors in 2000. It doesn’t have as many customer reviews as the other entries on this list, but the customers that leave comments tend to say good things.

CuraDebt has a nearly perfect rating on its BBB and TrustPilot review pages. It also holds accreditations with the AFCC and the IAPDA. It’s not accredited with the BBB, but the platform gives it an A+ rating.

CuraDebt isn’t as well-established as the other entries on this list, but it’s one of the only debt settlement companies to allow tax-related debts. If you want help navigating the unique challenges of settling with the Internal Revenue Service or your state tax department, CuraDebt may be your best option.

Learn More: When Should I Hire a Tax Debt Relief Company?

How It Works: CuraDebt offers debt settlement services for unsecured accounts and state or federal tax debts. You may qualify for a program with as little as $5,000 outstanding.

That makes CuraDebt more accessible than most of its competitors. However, if your debts are that low, you can probably use a less extreme method to meet your needs.

If you meet the requirements, you can schedule an initial consultation online. During the discussion, you’ll explore your financial situation and debt relief options with a counselor.

If debt settlement is your best option, they’ll create a program proposal for you. CuraDebt’s programs last between 24 and 48 months, save you roughly 50% before fees, and cost about 20% of your initial enrolled balance.

CuraDebt’s unsecured debt relief services are unavailable in CT, HI, ID, KS, LA, ME, MT, NH, NV, OR, SC, TN, UT, VT, and WV. Tax debt relief is unavailable in PA and PR.

Pros and Cons of Debt Relief Companies

If you’re drowning in debt payments that you can’t hope to afford, debt relief companies can sound like a much-needed lifeline. However, they have significant drawbacks that you must consider before you hire one.

Let’s explore the most notable pros and cons of debt relief companies to help you decide whether or not you should consider using one.

Pros of Debt Relief Companies

The only tangible benefit of hiring a debt relief company is that they’ll negotiate with your creditors for you. Theoretically, you can try to reach a settlement agreement with your creditors personally, but it’s often stressful, time-consuming, and challenging.

Outsourcing the work can save you time, energy, and mental stress. In addition, debt settlement companies have more experience in negotiation than you, and the best ones have good relationships with creditors. They might be able to reach an agreement faster than you could and achieve more favorable terms.

Cons of Debt Relief Companies

Unfortunately, there are many more downsides to hiring a debt relief company than advantages. The most significant ones include the following:

• Credit score damage: Debt settlement companies force you to stop making payments toward your debt, potentially for years at a time. Since payment history is 35% of your score, your credit will drop significantly. Settling an account for less than the outstanding balance also hurts your score.
• Exposure to lawsuits: When you default on a debt, there’s a chance your creditor or their debt collection agency could sue you to collect on the funds. Your debt relief company won’t be able to provide much assistance.
• Forgiven debts may be taxable: When you settle a debt for less than you owe, the absolved portion is taxable income. However, you don’t have to pay if your assets are less than your liabilities at the time. To figure out the tax repercussions of debt settlement, you may need to speak to a tax expert.
• Savings aren’t guaranteed: Debt relief companies won’t always reach a settlement agreement with your creditors. Even if they do, you might not save much money. Penalties and interest will continue to accrue on your debts, and relief companies charge you 15% to 25% of your enrolled balance.

Don’t let debt relief companies trick you into thinking that signing up for a debt settlement program is a magic bullet for getting out of debt. In reality, it’s expensive and high-risk, and you should only consider it as an alternative to filing bankruptcy.

Alternatives to Debt Relief Companies

Before you hire a debt settlement company or attempt to negotiate a settlement yourself, make sure you’ve exhausted all your other options. Of course, the best way to resolve your debt issues is to increase your net cash flow and pay them off in full.

Assuming you can’t solve your problems by tightening your budget or earning extra income, consider the following forms of debt relief next:

• Ask your creditors for help: Contact your creditors and ask them to help you pay them back. Reaching out, especially early, is a sign of good faith. They may have a hardship program that lowers your monthly payments or gives you more time to pay.
• Sign up for credit counseling: Credit counseling agencies are typically non-profit organizations that work with you to improve your finances. They also offer debt management plans, which involve your counselor negotiating with your creditors for better terms. However, they don’t have you stop making payments or settle your account for less than you owe, so they’re better for your credit.
• Execute a debt consolidation: Debt consolidation involves using a new credit account to pay off your existing debts. With a good credit score, you can consolidate your debts into a loan or credit card with more favorable terms.
• Consider bankruptcy. If you qualify for a Chapter 7 bankruptcy with no exposed assets, it can be a better option. The process can be over in six months, as opposed to two to four years for debt settlement. You can also discharge debts completely, instead of reducing them by 25% to 30%.

Each of the above options is more affordable than hiring a debt settlement company and does significantly less damage to your credit. Make sure you try to resolve your debt issues with them before resorting to a debt settlement company.

Learn More: What Is Debt Relief? How Does It Work and What Are Your Options

Are Debt Relief Companies Worth It?

Debt relief companies negotiate with your creditors on your behalf to settle your unsecured debts for less than you owe. Assuming you hire one that’s trustworthy, they can save you time, stress, and money.

However, the process damages your credit score significantly, and there’s no guarantee it’ll result in debt freedom. In addition, hiring a debt relief company to manage the process for you is expensive, and you may not save much money after paying their fees. Ultimately, you should only ever consider it as an alternative to bankruptcy.

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In the end, though, it may end up worthwhile, as it can save you the headache of filling up forms, explore tax forgiveness, as well as negotiating for payment in installments.

Let’s find out just how much this professional tax debt relief company can help you.

Read our Optima Tax Relief review to get a full picture of their services and what they can do for you.

How Much Does Optima Tax Relief Cost?

Getting tax relief from a legitimate company like Optima isn’t free. But it doesn’t have to cost you an arm and a leg, either.

Ultimately, whether Optima is worth it depends on a few things:

• How big your tax bill is
• Whether your tax returns are filed and up to date
• The type of legal help you need (such as help for a tax lien or wage garnishment)

But after that, you move onto the Investigation Phase.

And that will cost you $295.

After you hand over the initial fee, Optima will get to work on your case. They’ll open up lines of communication with the IRS and start figuring out what your options are.

From there, how much more you pay depends on your situation. Here’s what you might expect.

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Getting Up to Date on Tax Returns

Here’s the first big question: are your tax returns filed and up to date? If your taxes are already up to date, you can breathe a sigh of relief.

If not, don’t panic.

You probably had a good reason for skipping past returns. Maybe you couldn’t track down some of your records or had a personal hardship.

Whatever the case, know these two things:

1. You CANNOT negotiate with the IRS to reduce your tax bill until your returns are filed and up to date
2. Optima makes it easy to fix the problem of unfiled returns

But there is a downside.

Getting up to date on your past returns isn’t going to be cheap.

Generally, costs can average between $2,000 and $5,000 to have Optima sort out your tax situation from start to finish.

Related Article: Pros & Cons of Working with Optima Tax Relief

Setting Up an Installment Plan

If you owe less than $10,000, you can probably get on the phone with the IRS to set up a payment plan all by yourself.

Quick Tip: Once you start an installment plan, you will have a harder time qualifying for a debt reduction request later.  We recommend you speak to an expert to see if you qualify for tax relief first.

You should definitely talk to a tax pro if you owe more than that because you might not qualify for debt relief from the IRS if you already have an installment plan.

If an installment plan is your best course of action, Optima will know.

Why not just do it yourself?

Because you might get a monthly payment you can’t afford.

You see… the IRS thinks anyone who owes that much in taxes must have a pretty good income.

But Optima knows the truth, and they’ll advocate on your behalf.

Negotiating a Settlement

Wondering how Optima might help you negotiate a settlement?

That’s a great question.

Firstnthey’ll negotiate a fair settlement to relieve you of your tax debt by making an Offer in Compromise.

Keep in mind that negotiating with the IRS can be tricky.

Even a seasoned tax expert will have to spend some time going back and forth to get you the best deal.

And more time can mean higher fees.

Instead of paying $2,000 to $5,000 for tax debt relief help, you may end up paying closer to $7,500.

But it also could mean higher savings.

One client review I read says the company reduced their $51,000 tax bill to $1,368.

So, instead of sitting around wondering if you’re doing the right thing, you can take a deep breath knowing the pros have got you covered.

Put a Stop to Garnished Wages and Tax Liens

Garnished wages and tax liens are a pretty big deal. When the IRS steps in to take your money or puts a lien on your property, you shouldn’t wait to take action.

Unfortunately, there are additional costs involved to stop wage garnishment or to remove a lien.

We’re talking about court fees.

The court has a filing fee for almost everything. You may have court fees on top of the $2,000 to $7,500 or more that Optima charges.

But there is good news!

No matter how dire the situation, Optima Tax Relief can help you find a way out.

They can even help you remove the lien from your credit report.

Is Optima Tax Service Worth It?

This is the million-dollar question.

So… is Optima Tax Relief worth it?

They sure are.

Because even with the average fees in the $2,000 to $7,500 range, Optima can save you money.

Calling Optima won’t make your tax troubles disappear, but one thing is clear: they’ll make dealing with the IRS a lot easier.

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