Bankruptcy vs. Debt Settlement
If you are having trouble making your credit card payments, you may have come across two solutions: bankruptcy and debt settlement. Both serve the purpose of eliminating debt. If you owe creditors tens of thousands of dollars, then you may not imagine ever being able to repay these debts. If this describes you, then both of these options can help, but they can impact your credit in many ways. Here are the pros and cons of each so you can make the right decision for your financial future.
Pros and Cons of Bankruptcy
Bankruptcy is probably the quickest way to eliminate debts. Depending on the path you choose (Chapter 7 vs. Chapter 13), you can get rid of your debt in as little as several months. While this is the main benefit of Chapter 7 bankruptcy, it also means you will likely lose your home, car and other assets. Plus, your credit will take a huge hit, since you are not repaying your debt.
Chapter 13 bankruptcy is a little better in terms of how it will affect your credit and assets. Under this form of bankruptcy, you make payments under a plan that lasts 3-5 years. Once you have completed the terms of the plan, your debts are paid off (except your mortgage) and you get to keep your assets. Since you made an effort to repay your creditors, your credit score won’t be affected as badly.
Pros and Cons of Debt Settlement
Debt settlement allows you to settle your account for less of the balance. Not all creditors allow for this, but if they do, you can settle your account for 35% or 75% of the balance. Many creditors are willing to accept this offer, especially if you are behind on payments, because there is the risk that you could file for bankruptcy and they could get nothing. Debt settlement is not a legal action, unlike bankruptcy. You can settle your debt on your own without a lawyer or financial services company.
There are many debt consolidation and settlement services out there, and many of them charge high fees—sometimes 25% of the total balance—in order to settle your debt. If you have $40,000 in debt, that’s $10,000. Sometimes these companies are not successful in reducing your debt, but take your money anyway. Plus, these companies order you to stop making payments to creditors and instead put the money in a savings account so you have enough for a lump-sum offer. You could still get sued by the creditor because debt settlements can take as long as 3-4 years.
Contact a Coral Springs Bankruptcy Attorney
If you are struggling with debt, you have some tough decisions to make. While bankruptcy can wipe out your debt quickly, you may lose assets such as homes and cars in the process. A debt settlement will better protect your credit, but that has some downsides as well.
Coral Springs bankruptcy attorney Barry S. Mittelberg can assess your financial situation and help you make the right decisions. He will help you find relief from your money worries and attain peace of mind. To schedule a free consultation, call our office at (954) 752-1213.