Debt Settlement vs. Bankruptcy
Examining your options is important for anyone experiencing debt problems. If you are considering bankruptcy or debt settlement to resolve your financial difficulties, investigate the consequences of each process before making your decision. Below is some information about debt settlement companies and bankruptcy that you may not know:
Debt Settlement: The debt settlement process will harm your credit for years. Creditors will report your delinquent account until it is paid. Your report may identify settled accounts as paid less than 100%, which also adversely affects your credit score.
Bankruptcy: Any debt included in a bankruptcy appears on your credit report as discharged with a zero balance from the date you filed your bankruptcy case. Bankruptcy stops adverse reporting so your credit report can improve.
Debt Settlement: The typical debt settlement account will resolve your debt with a lump sum payment of between 20% and 80% of the debt.
Bankruptcy: In most bankruptcy cases you pay nothing to unsecured creditors.
Debt Settlement: Any settled debt will have tax consequences and you may have to pay the IRS.
Bankruptcy: There is no tax liability for a debt discharged in bankruptcy.
Debt Settlement: You may be sued while you or your representative is attempting to settle your debt.
Bankruptcy: All lawsuits are prohibited during your bankruptcy case.
Debt Settlement: Some debt settlement companies are disreputable and the process is even illegal in some states.
Bankruptcy: The bankruptcy process is authorized by the United States Constitution and its laws are written by Congress. Only licensed attorneys admitted to practice in the federal courts are able to represent bankruptcy debtors.
Debt Settlement: The debt settlement process can take more than a year. The general rule is: the longer you don’t pay, the better the settlement. Creditors are reluctant to accept less than full payment unless they believe that you may file bankruptcy.
Bankruptcy: The typical chapter 7 bankruptcy case takes less than six months.
If you are struggling with debt, investigate your options and speak with an experienced bankruptcy attorney. The federal bankruptcy law is a powerful tool to eliminate your debt problem and put you on the road to financial recovery.
BBB Warns of Debt Relief Fraud
The Better Business Bureau recently issued a warning to consumers regarding the misleading practices of debt settlement companies. This warning comes after receiving more than 3,500 complaints since the start of the recession in 2007. The BBB reports that many individuals paid hundreds of dollars in upfront fees to debt settlement companies, but only fell deeper into debt after the process failed.
In an article posted to the BBB website, Stephen A. Cox, President and CEO of the Council of Better Business Bureaus said, “The debt settlement industry is flourishing and many families are being lured into believing that debt settlement is an easy fix and that their credit card debt will just disappear.” Mr. Cox went on to say that “the truth is that the process doesn’t work for many consumers, it has potentially serious negative consequences, and should primarily be used as a last ditch effort[.]”
Debt settlement companies typically offer to negotiate a settlement for a fee. Unscrupulous companies mislead consumers with promises of large savings and quick resolution. The truth is that it is difficult for a non-attorney to obtain a debt reduction of 50% or more. Additionally, these types of settlements are only available with a one-time payment. Most debt settlement companies require an up-front fee and ask the consumer to make payments into a savings account held by the debt settlement company for future settlement. During the process of six months to a year that it takes to build up the account, the consumer is at risk of garnishments and lawsuits.
In some cases fraudulent debt settlement companies have stolen from the consumer accounts, or refused to return funds. In other cases the consumer is driven deeper into debt when the debt settlement company is unable to settle the debt.
Unlike debt settlement, the bankruptcy process is a legal process supervised by a federal judge and the U.S. Department of Justice. Your agent is a licensed attorney throughout the process. There are no hidden fees and you pay only what you are able to afford. At the end of the bankruptcy process your debts are discharged and you receive a financial fresh start ordered by the bankruptcy court.
If you are struggling with debt and need financial relief, speak with an experienced attorney and discover how the federal bankruptcy laws can help you and your family. Don’t be a victim of a debt relief scam.