Is Debt Settlement or Bankruptcy Right for You?

When you are struggling with a large amount of debt and do not know how you will pay it off, you do have options available. Two of these that are often pursued by borrowers are bankruptcy or a debt settlement. Each of these options can make it easier for you to repay the debt, or even potentially allow you to become debt-free. Debt settlement is very different from bankruptcy, though, and both options have their own advantages and drawbacks. Below, our consumer debt defense lawyer in Broward County outlines what these are.

What is Debt Settlement?

A debt settlement is an agreement between you and your creditors to repay a lower amount than what is owed. Usually, a debt settlement will also include a repayment plan that allows you to make affordable payments over a certain amount of time. It is important to note that not all creditors will be willing to agree to a debt settlement.

Additionally, while there are debt settlement companies that can negotiate for you, it is always best to work with a consumer debt defense lawyer. Debt settlement companies are for-profit businesses, and they are not always honest or ethical. If you hire a lawyer, you will know you are working with someone who is bound by ethics and must comply with certain rules and standards. A lawyer will also have the necessary experience to negotiate with your creditors on your behalf and creditors are often more willing to work with borrowers who have legal representation.

It is often recommended that you start considering a debt settlement even before you fall behind on your payments. Creditors are often more willing to work with proactive borrowers, and you may also be eligible for a hardship program offered by your creditor, which will make it easier to manage your payments.

What is Bankruptcy?

There are two main types of bankruptcy consumers file when they are struggling with debt. The first is Chapter 7 bankruptcy, which is the most common type. During a Chapter 7 bankruptcy, your non-exempt property is sold to repay your creditors. If you are successful with your case, most if not all of your debt is discharged. Not everyone qualifies for Chapter 7 bankruptcy, though, and you will have to pass a means test showing that you are unable to repay your debt.

Individuals who do not qualify for Chapter 7 bankruptcy can file for Chapter 13 bankruptcy. During a Chapter 13 bankruptcy, you do not lose any of your property but you do repay at least a portion of your debt. The debt you are currently carrying is reorganized into a repayment plan that will make it easier for you to make payments and eventually become debt-free. You typically have three to five years to repay all of your debt.

Debt Settlement: The Pros and Cons

Before deciding if a debt settlement option is right for you, it is important to consider the pros and cons of this method. The pros of a debt settlement are as follows:

• A debt settlement agreement that works for you: If you work with an experienced consumer debt attorney who has relationships within the industry, you may get a stronger settlement offer that is more affordable for you.
• Confidentiality: Regardless of the type of bankruptcy you file, it will have to go through the courts, which means it becomes a matter of public record. A debt settlement is a private negotiation, so future employers and others who may perform background checks will never know about it.
• Better for your credit: If you have gotten behind on bills and are struggling with debt, your credit score has already likely taken a hit. With a debt settlement, any debts currently on your credit score will remain there for seven years. However, that time becomes much longer in bankruptcy, which could stay on your credit report for as many as ten years.

Unfortunately, few things in life are perfect. Debt settlement can have some downsides too, and they are as follows:

• It is not a quick fix: Even though a debt settlement will allow you to manage your debt easier, it may also include a repayment plan that can take several years.
• The forgiven debt is taxable income: If a creditor forgives a certain portion of your debt, it becomes taxable income, meaning you will have to pay taxes on it.
• Potential lawsuits: With a debt settlement, creditors can sue you before an agreement is reached, or if you do not make payments as part of the program.

Bankruptcy: The Pros and Cons

Bankruptcy, too, has many pros and cons. The biggest benefits of bankruptcy are as follows:

• Eliminate most of your debt: Through a Chapter 7 bankruptcy, you can discharge most of your unsecured debt, such as medical bills and credit card debt.
• Collection calls will stop: With either type of bankruptcy, a judge will issue an automatic stay at the beginning of your case. This prohibits creditors and debt collectors from contacting you to try to recover the debt.
• No taxes: The debt discharged in bankruptcy is not considered taxable income, so you do not have to pay taxes on it.

The biggest drawbacks to bankruptcy are as follows:

• Hit to your credit score: Regardless of which type of bankruptcy you file, your credit score will take a hit and the bankruptcy will show on your credit report for up to ten years.
• You cannot discharge all debt: Some types of debt, such as alimony, child support, tax debt, and student loans are not dischargeable during bankruptcy.
• Public record: Few people will bother to check the public record to see if you have ever filed bankruptcy, but it could hinder certain opportunities for you, such as employment.

Our Consumer Debt Lawyers in Broward County Can Advise on Your Case

No one can determine whether bankruptcy or a debt settlement is right for you without first fully reviewing the facts of your case. At Loan Lawyers, our Broward County consumer debt lawyers can advise on the best way to handle your debt, and help you through whichever option is right for you. Call us now at (954) 523-4357 or reach out to us online to schedule a free consultation.