Debt Settlement Vs Bankruptcy: Ways To Eliminate Debt

Debt settlement vs. bankruptcy: which is the better option for eliminating debt? This is the question that many consumers who are struggling with debt are asking themselves. And the answer to this question depends on a number of factors including:

Whether the consumer has assets;
The type of debts the consumer has;
Whether the debtor has received a bankruptcy discharge in the past and, if so, how long ago he received it; and
The consumer’s overall financial situation.

What is Debt Settlement?

Debt settlement allows a consumer to negotiate a payoff of a particular debt which is less than what is actually owes on that debt. A consumer can use debt settlement to settle a variety of debts including:

Credit card debts;
Medical bills;
Student loans;
Tax debts; and
Deficiency judgments on defaulted auto loans.

What are the Pros and Cons of Debt Settlement?

Depending on a consumer’s overall financial picture, debt settlement can be very beneficial. Some of the advantages of debt settlement are:

Reduction of the principal balance of the debt;
Interest savings;
Reduced monthly payments; and
Reduced time to pay the debt in full.

Debt collection also has some drawbacks of which a consumer should be aware. These drawbacks include:

Most creditors require a consumer to be behind on payments before debt settlement will be approved;
Creditors are not obligated to accept debt settlement offers;
Interest may continue to accrue until the debt is paid in full;
Collection calls will continue;
The forgiven debt is taxable by the IRS.

What about Bankruptcy?

Bankruptcy gives a debtor an opportunity to either liquidate his debts or to restructure them over a three to five year period depending on whether he files Chapter 7 or Chapter 13 case. As with debt settlement, there are pros and cons to filing bankruptcy.

Some of the pros of filing bankruptcy are:

All collection efforts by creditors will stop;
Chapter 7 wipes out most unsecured debts;
Chapter 13 may wipe out most unsecured debt;
Discharged debts are not subject to taxation; and
Assets are protected from repossession and foreclosure.

The disadvantages of filing bankruptcy are:

Non-exempt assets may be seized by the trustee, sold, and the net proceeds distributed to unsecured creditors;
Stays on credit for as long as ten years; and
Becomes a part of the public record and may remain there for as long as 20 years.

Getting Legal Help

If you are struggling to pay your bills and need helping deciding whether debt settlement or bankruptcy is the best option for you, you should consult with a qualified debt settlement attorney. He will review your circumstances and offer an opinion as to which option will be help you achieve your short and long term financial goals.

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