A court filing is not required for debt settlement. It can be done without financial counselling or legal counsel, unlike bankruptcy. A settlement is a negotiation with creditors to reduce the amount owed. Usually, it involves a lump-sum payment.
Okay, but why would creditors offer to settle your debts at a lower amount than what you owe?
They know that you can file for bankruptcy at any time, eliminating their ability to collect from you. They are more likely to settle for less than what they owe through debt settlement.https://www.youtube.com/watch?v=EJYZCTXU4Dg
Bankruptcy could be an option if you cannot afford the reduced payments negotiated through debt settlement.
Bankruptcy is available in two forms:
This payment plan clears your debts in 3 to 5 years. It takes 6-8 months but can have potential pitfalls. You can still keep your home under bankruptcy, provided you make regular payments and don’t have too much equity.
Your home may be exempt if you have substantial equity. However, some states allow bankruptcy trustees in other states to sell your house to help repay creditors. It would be best if you also made less than the median income of your state (half of your salary above, half below) for a family of your size.
Although bankruptcy will not allow you to collect debts, the headaches that can follow can last for many years. While debt settlement without bankruptcy may take longer, it can be done more efficiently and do less damage to credit. While debt settlement will remain on your credit report for seven-year years, it has a less detrimental effect on your credit score.
Advantages and disadvantages of debt settlement
Although debt settlement is a great way to get out of financial trouble, it can also be costly. The Consumer Financial Protection Bureau warns that “Debt Settlement may well leave you deeper in debt than when you started.” This is a very disturbing thought.
It isn’t easy to convince creditors or multiple creditors to agree to less than what they owe. Although creditors are not required to agree to a settlement, many wills if they feel you are unable or unwilling to pay. It means that they get little to nothing if this happens.
Some people choose to have a debt settlement company represent them. Others negotiate their agreements. Contracting with a debt settlement firm is a way to save time and avoid the hassle of negotiating your terms. However, the CFPB warns that dealing with debt settlement companies is risky. You must be educated about the details of your debt and develop a realistic plan to save money each month. Then, negotiate with creditors or collectors to agree to a reasonable repayment plan.
Bankruptcy: Advantages and Drawbacks
Individuals can clear their debts by filing bankruptcy or through the courts. It will eliminate your debts. However, it may require you to liquidate everything you own to compensate creditors in certain states.
This protects your home against foreclosure, but you must repay some creditors over 3-5 years. It is sometimes called “wage earner bankruptcy” because it requires repayment.
These chapters can cause permanent credit damage. You will be responsible for repaying student loans, income taxes, and child support payments.
CONCLUSION – Debt Settlement vs Bankruptcy: Which is Better?
There might be one universal answer if everyone with debt was in the same situation. However, this is not true. While debt settlement might be an option in some situations, bankruptcy may be a better choice in others. In a third situation, neither option may be the best.
Unfortunately, there is no one solution to serious debt problems. There are many options for getting out of debt. In Charge Debt Solutions, a non-profit credit counsellor is well-equipped to assist you.
Talk to In-Charge credit counsellors before you make a decision. They can assess your situation and help you decide which option is best for you.
In Charge Debt Solutions offers classes in bankruptcy education if bankruptcy is the best way to escape your debt crisis. These classes include both online instruction and telephone counselling. They guide how to manage money and budget and create and maintain a plan that will help you achieve a better financial future.