Debt Settlement vs Bankruptcy: Pros And Cons

If you are having trouble paying your debts you may be wondering is debt settlement better than bankruptcy. The best solution to your financial problems will depend on your circumstances. Each option provides its benefits and should be considered in detail prior to making a final decision.

Factors to Consider

You will want to look at the following in deciding which route to take:

• Your income (current and predicted future income);
• Any assets, including houses, vehicles, and other assets that you might lose in a bankruptcy proceeding;
• How you came to have financial troubles; and
• The extent of all your debts.

Debt Settlement

Pros

• Avoid bankruptcy which stays on your credit for seven to ten years.
• If you can afford to pay some of your debts and are relieved from a portion of them, you may be in a better position to restore your credit.

Cons

• Your creditors may still have the right to sue on your unpaid debts. With bankruptcy, once final discharge takes place, your creditors (the ones included in the discharge) do not have the right to sue you on those debts.

Bankruptcy

Pros

• In some cases, bankruptcy can erase all your debts (chapter 7 usually does this). This can be a huge relief for someone who has a limited income and excessive debt.
• Bankruptcy can give you a clean slate by allowing you to start over, erasing excessive unsecured debts.

Cons

• Some debts cannot be discharged as bankruptcy. A common debt that cannot be discharged is with student loans.
• Bankruptcy stays on your credit report for seven to ten years.
• You may lose assets such as a home or vehicle during the liquidation process in some circumstances. You should discuss your assets with an attorney to find out how you would be impacted.
• It can be very difficult to obtain credit for things such as vehicles, housing and household utilities due to bankruptcy.
• You may be asked on some applications for employment and housing whether you have ever filed for bankruptcy, and you will be forced to answer 'yes' legally.
• Bankruptcy can be an emotionally painful thing to endure. Feelings associated with filing for bankruptcy include anxiety, sadness, fear, embarrassment and depression.

Talk to an Attorney First

If you are having financial problems and need to do something about it, you should discuss your situation with an experienced attorney. An attorney will explain your options to you, and help you go through the process of getting back into a more manageable financial situation.