Debt consolidation is an increasingly common tool that allows people to get their finances under control. It's often seen as an alternative to bankruptcy, especially for folks who might not qualify to restructure their debts through that part of the system. Some people also use it just to collect all of their debts in one spot for improved manageability.
Every bit of this process has attached legalities. For that reason, it's normal to have a debt consolidation attorney assist you. Keep reading to learn the reasons why you might want legal help with professional debt consolidation efforts.
Settlements and Contracts
Fundamentally, every consolidation agreement is a settlement and contract. An agreement of this kind is a settlement in the sense that at least two parties have elected to forgo some previous rights or opportunities to make a new arrangement work. They have settled on the new arrangement.
A contract governs this new agreement. That means there need to be terms that will retire the debts from the old arrangement. Similarly, if several parties are agreeing to the debt consolidation, it's important to make sure all of the attached accounts are settled once the consolidated deal goes into effect.
Working with Multiple Parties
Debt consolidation tends to imply that you're dealing with multiple creditors. It's also normal for a debtor to work with a financial institution that will become a new creditor. Essentially, the old creditors settle up for whatever amount the institution wants to pay them, and then the debtor owes a new amount to the institution.
In other words, there are the old creditors to one side. You represent another side, and the new lender is the third side of a triangle. With three sides negotiating a settlement, each has to protect its interests and rights.
You are one side, and you're probably also the one with the least bargaining power. Consequently, it's wise to have a debt consolidation lawyer review everything before you sign.
Functionally, there is a fourth party in all of this. The government views whatever amount you might save through the debt consolidation process as a form of income or financial benefit. Naturally, the government wants a piece of that.
Suppose you ended up saving $10,000 through consolidating your debts. If you're in the 25% tax bracket, you could end up realizing a $2,500 tax event. You need to be prepared for that so you can minimize your tax bill and make arrangements to pay what you owe.
If you have questions, contact a local debt consolidation attorney.