Debt Settlement has been around for a long time, and in recent years, has fallen out of favor. Many companies hvae been shut down by the Federal Trade Commission. The ones that are still in business are doing things the right way. Here's what they do:
Help you start a trust account for savings. When you have enough saved in the account that the company can call one of your creditors and negotiate a lower balance settlement, they then use the money in the trust account to pay off that debt for you. Then, they bill you for 15-25% of the debt as their fee.
When you have enough saved in the trust account, the company calls your second creditor and repeats the process. Then bill you as mentioned above. On and on it goes until they have completed solving all your debts.
At the end of the year that the creditor accepted a reduced pay off from you, you will get a 1099 for the "forgiven" part of the debt, and you will have to pay taxes on that amount as if you earned it…as ordinary income. Example: A $10,000 debt gets reduced to $5,000 and is paid off. You may pay $1500-$2500 for the debt settlement company to perform the services, and you will received a 1099 for $5,000 of forgiven debt.
As long as you do it quickly, you may not get a lawsuit. But when they work on one account at a time, the other accounts can get to a time frame where they decide to sue you. There is no protection in the Debt Settlement program for that circumstance, and you will be on your own.