Have you ever laid awake at night and pondered bankruptcy vs debt settlement? What are the pros and cons of each? Maybe not. But if your like just about everyone else, you have laid awake contemplating debt strategies, or even all out worrying about debt.
If you have been in debt worry mode lately, remember one thing. There are options and services designed to help. These options range from programs for those in desperate financial trouble to those who find them having to always tighten their financial belt buckle. In this article we will help you make the decision between bankruptcy or debt settlement.
It seems everybody knows somebody who's filed bankruptcy at some point. On the flip side, most people will probably tell you they don't know of anyone who's ever used a debt settlement program. That's because, for some reason, the words debt settlement seems to be taboo compared to bankruptcy. The funny thing is, debt settlement is less of a credit impact than filing for bankruptcy. You can make your own opinion about this, we'll just help you compare them side-by-side.
Both are designer to help individuals, couples, and businesses that are financially up-side-down.
In some ways, settling debt is more restrictive. In other ways, bankruptcy is.
For starters, the main objective is to determine which method is the best fit for you. There are pros and cons to both, so you have to do your homework and see which fits your situation the best. You don't want to pay to file for bankruptcy just to find out you don't qualify. That's money you can't afford to lose.
Below we will highlight some qualifying factors for both options as well as the pluses and minuses for both. Ready... set... LET'S DEAL WITH DEBT!
Debt Settlement Pros and Cons
Getting a creditor to settle on a lower payoff is based, mainly, on two factors. If you are past due or not, and to what degree.
At some point during a delinquency it's in the creditors best interest to except less. There is no hard and fast percentage, but typically with an experienced debt settlement company you can expect to pay about 50% of what you owe. This includes the service fees.
Trying to Settle Debts Yourself
You can also try to settle debts with your creditors yourself. The biggest advantage to using a service, though, is that they will typically get you a better deal. This is because they settle many debts at once with each creditor. They also settle them electronically which streamlines the process tremendously. This saves the creditors time and expense which is passed on to you. Just another factor to contemplate when comparing the two.
During the Settlement Process
During the settlement process, the creditor should suspend any collection actions once you have come to an agreement. Once the debts are zeroed out, they will reflect on your credit reports as paid or paid for a settled amount. This is less harsh on your credit compared to filing chapter 13 bankruptcy. You will, however, have to pay taxes on the principle amount saved.
Chapter 13 vs Debt Settlement
Chapter 13 is a longer process than a chapter 7 bankruptcy and is more limited on how much debt you can include. Although it's easier to qualify for chapter 13, it probably won't save you as much as working out a negotiated payoff through a reputable debt settlement company. In a chapter 13, you must agree to pay back some of the debt over a five year period. You may have to agree to pay back all of the debt. This will be based on the type of debt you include in your filing.
You must keep up with the payments or your case will be dropped and you will have surrendered any money paid in. This opens the door for the creditors to come after you personally for any unpaid balance. The good news is that you won't lose any personal assets in a chapter 13 like you will in a chapter 7 as long as you keep up with your payments.
Related: Bankruptcy's Impact on Credit
Debt Settlement or Bankruptcy?
Under certain circumstances, bankruptcy might make more sense. In most cases, debt settlement is probably the better choice, though. This is because a chapter 13 doesn't really accomplish as much as debt settlement. It's also more harsh on your credit score. The best thing you can do is make a good evaluation of your situation and see what makes the most sense for you.
Other Services We Offer
One of the debts on the incline for debt settlement, are private student loans. The need for private student loan forgiveness has risen as the price of education has risen. Among private student loans, the need for Sallie Mae loan forgiveness has led the way. This is because Sallie Mae is the largest private student loan lender. When comparing debt settlement vs bankruptcy, private student loans are better dealt with by using a debt settlement program. The reason is because private student loans are hard to bankrupt on. For more information on settling your private student loans, visit the links above.