If the burden of your accumulated debts is sinking you deeper and deeper, and month after month you see how your money isn’t enough to pay the bills, then you should start looking for ways to get rid of your debts. As you investigate, you’ll soon realize that the two most effective methods for getting out of debt are debt settlement and bankruptcy. However, knowing which one is the best option for you may be more complicated than it seems.
Essentially, both bankruptcy and debt settlement are solutions to the same problem. Both, in one way or another, will allow you to free yourself from debt so you can start rebuilding your finances from scratch. However, each one has pros and cons that you should consider before choosing which one is best for you. Here you will find a rundown of both processes, so you have the information you need to make the right decision.
Regardless of which one you choose, you may want to consult with a bankruptcy attorney, depending on your case, who has the necessary knowledge to guide you through either process.
The success of your case probably depends on choosing the right attorney. That’s why you should make sure to work with an experienced, efficient legal professional who is always available to you. You can find many law firms in California that meet these criteria, such as KT Bankruptcy Lawyer and many more. Most of them offer free consultations, which will help you choose the right lawyer for your case.
What is debt settlement?
Debt settlement is a strategy to eliminate most of your debts that involves negotiating with your creditors to agree to receive less money than you owe them, allowing you to pay off your debts with a lump sum.
Usually, this process is conducted by a third party, either a company or an attorney. Your representative will negotiate to reduce the amount you will be required to pay. For example, if you owe $20,000, the creditor may agree to settle for $12,000, saving you $8,000 in the process.
Pros and cons of debt settlement
Debt settlement offers the following advantages:
- It is usually a faster option. A good debt settlement plan will allow you to pay off your debts in a couple of weeks, or a couple of years.
- You’ll only have to pay a portion of what you owe to get rid of your debts. You could settle from 25% to 80% of your debt.
- You will receive free credit counseling to create and negotiate your debt settlement plan.
On the other hand, there are some disadvantages to debt settlement:
- Your creditors are not required to accept your debt settlement offer.
- It will have a significant impact on your credit score.
- It’s only really an option if you have the income to cope with the demands of the plan.
What is bankruptcy?
Bankruptcy is a legal process that will enable you to achieve a debt discharge through the sale of your non-exempt assets (in the case of Chapter 7) or through a repayment plan that can last from 3 to 5 years depending on your accumulated debts (in the case of Chapter 13).
Chapter 7 and Chapter 13 bankruptcies are quite different because they are tailored to different types of cases. But essentially, both will give you a chance to get a fresh financial start.
Pros and cons of Bankruptcy
Bankruptcy offers the following advantages:
- Thanks to the automatic stay, your creditors will be forced to stop all of their debt collection efforts.
- If the process is successful, you will be free of most of your debts.
- It is possible that in a Chapter 7 bankruptcy all your assets will be exempt. Allowing you to get out of debt without losing anything.
However, you should keep in mind that bankruptcy has the following disadvantages:
- It will be on your credit report for 7-10 years.
- You will lose your credit cards.
- If you have luxury assets, you will probably lose them in the process.
If you’re in a critical financial situation, you can’t afford to make mistakes. To find out which process is right for you, talk to a bankruptcy attorney near you.