While creditors have no obligation to agree to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. That can result in a negative entry on your credit report. And in certain situations, creditors may have the right to sue you to recover the money you owe. In some instances, when creditors win a lawsuit, they have the right to garnish your wages or put a lien on your home. Finally, the Internal Revenue Service may consider any amount of forgiven debt to be taxable income.

Tip-Offs to Rip-Offs

Steer clear of debt negotiation companies that:

• guarantee they can remove your unsecured debt
• promise that unsecured debts can be paid off with pennies on the dollar
• claim that using their system will let you avoid bankruptcy
• require substantial monthly service fees
• demand payment of a percentage of savings
• tell you to stop making payments to or communicating with your creditors
• require you to make monthly payments to them, rather than with your creditor
• claim that creditors never sue consumers for non-payment of unsecured debt
• promise that using their system will have no negative impact on your credit report
• claim that they can remove accurate negative information from your credit report.

If you decide to work with a debt negotiation company, be sure to check it out with your state Attorney General, local consumer protection agency, and the Better Business Bureau. They can tell you if any consumer complaints are on file about the firm you're considering doing business with. Also, ask your state Attorney General if the company is required to be licensed to work in your state and, if so, whether it is.