Bankruptcy Versus Debt Settlement
Bankruptcy versus debt settlement: when faced with financial difficulties, two solutions may come to mind: debt settlement and bankruptcy. Most often than not, these two routes of debt relief are easily confused and can lead to consumers making the wrong the choice. Before you decide on which financial management strategy is best for you, it is important to understand the difference between debt settlement and bankruptcy, and most importantly, which option will benefit you the most.
Bankruptcy Versus Debt Settlement: What is debt settlement?
Debt settlement is a process whereby either an attorney or a debt settlement company negotiates on your behalf for reduced monthly payments and discounts. Unsecured debt such as medical bills and credit cards are eligible to be repaid through a debt settlement program, whereas, in most cases, student loans, taxes as well as government loans cannot be settled via a debt settlement program. Repaying debt through a debt settlement program will require you to have a large amount of money available to settle debt within a short period of time.
Debt settlement will:
- Protect your assets
- Provide quick solution
What Is The Difference Between Bankruptcy and Debt Settlement?
When you file bankruptcy, you may have the opportunity to have all of your unsecured debt completely wiped out. This applies to both of the mostly common filed consumer bankruptcy codes, Chapter 7 and Chapter 13. A chapter 7 bankruptcy is known as a liquidation during which assets are seized and sold to repay debt. A Chapter 13 bankruptcy is one during which the filer proposes a payment plan over three to five years to repay debt. If the payment plan is approved by the court and adhered to, all remaining balances are discharged at the end of the plan.
Bankruptcy may be more favorable in comparison to debt settlement for the following reasons:
- It will give the consumer an opportunity to start a clean slate.
- When an individual who is on a debt settlement plan defaults on a payment, it causes more harm to his/her credit score. When you file bankruptcy, you can begin rebuilding your credit score almost immediately.
- Debt settlements are often accompanied with a substantial fee, whereas bankruptcy filing fees are generally inexpensive.
- When you file bankruptcy, automatic stay goes into effect which will prohibit wage garnishments, lawsuits or any other forms of debt collection efforts by creditors.
- Unlike a debt settlement program, bankruptcy filers have the opportunity to clear all unsecured debt. Debt settlement still requires payment despite the fact that it is negotiated.
It is clear that careful thought needs to be exercised when deciding whether to opt for bankruptcy or a debt settlement program. Our experienced attorneys at ZocLaw.com are will carefully analyze the details of your case during a FREE consultation to determine the best course of action.