Debt Settlement Vs. Bankruptcy – Benefits and Drawbacks

It appears that practically every American is buried under a mountain of debt. According to a research study by ValuePenguin, the typical credit card debt for American households was $16,048 as of the end of 2016.

Since this, opportunists have actually entered the marketplace to provide individuals an option to eliminating frustrating debt. This is describing the debt settlement business.

Typically, when a person was confronted with any type of monetary catastrophe, submitting bankruptcy was their only true option to rid debt in the fastest way. Now, in lieu of the personal debt problems a brand-new field has actually emerged called debt settlement. The concept behind debt settlement is to negotiate an individual’s personal debt for a portion of the balance owed. While it all sounds quite terrific on paper, it may not always work out for financially troubled individuals.

While no one truly wishes to submit for bankruptcy, in some cases it is the very best alternative relying on the scenarios. Debt settlement providers wish individuals to think that they are a one-stop repair for financial debt complications. Truth is, this business is uncontrolled by the federal government and therefore is not as thoroughly regulated as other debt relief methods.

How Debt Settlement Companies Operate

Just how these providers operate is that they’ll get you to sign an agreement with them to permit them to settle your unsecured debts.

Prior to settling your debt, they would need you to save up a reasonable amount of money in a designated account in which they will ultimately use to settle your debts. When they have sufficient money built up in the savings plan, they will then talk to your financial institutions and negotiate special offers to clear up the financial obligations for usually as low as half of the overall debt that you owe. This all sounds great with the exception that there are a couple of cautions to be aware of.

First of all, the moment that you cease making payments as well as offering all your cash to the debt settlement provider, there is a likelihood that the lender may still file a lawsuit claim against you. If the financial institution can get you in court, they can strongly have the ability to acquire a judgment to garnish your salary. The financial institution would then not have to fret about working out any repayment plans with you being that they have won the judgment. That’s why declaring bankruptcy is the most effective for many people.

Could Bankruptcy Be The Answer?

The moment a person becomes part of a bankruptcy declaring, the “automated stay” clause is put in place to stop all debt collection attempts from your creditors. This implies, not only that your creditors will have to stop calling you, but furthermore, lawsuits would come to a halt as well.

Various other reasons declaring bankruptcy is more desirable compared to debt settlement are the tax liabilities of clearing up a financial obligation. Occasionally a lender will deliver a 1099 to the person for the deficit of the personal debt negotiated and settled. This could produce a taxed scenario and as a result cause you increased tax liabilities. But with a bankruptcy declaring, all weakness as well as liabilities are entirely eliminated.

One more advantage to submit for bankruptcy is the potential to select a bankruptcy lawyer to go to bat for you and place a legal shield to protect your possessions. With debt settlement, you are primarily by yourself lawfully.

Determine What’s Best For Your Situation

Declaring bankruptcy is not an answer for everyone and ought to deeply discussed with a bankruptcy lawyer. Debt settlement does have its advantages, particularly for people who have $10k or less in unsecured debt. But if you have more than $10,000 in debt, then you should seriously look at the option of filing for a Chapter 7 bankruptcy. In this instance, the expense of the debt settlement may even be more pricey overall as compared to the bankruptcy.

When it comes to damages to your credit, they both place a ding that will last in between 7 – 10 years. Generally, after a bankruptcy release, credit will still be accessible as lenders recognize that many individuals leave a Chapter 7 bankruptcy being practically debt-free. Both debt settlement and bankruptcy have their advantages and disadvantages, and should not be chosen until you thoroughly explore the full details of each procedure.

37 thoughts on “Debt Settlement Vs. Bankruptcy – Benefits and Drawbacks

  1. Effective way of providing insight on debt settlements and bankruptcy, while taking into consideration the different needs and situations of individuals. By exploring the benefits of bankruptcy – being able to hire a professional lawyer “to bat for you” and the consequences of debt settlement – “the potential of a lawsuit filed against you” , it allows individuals who are in debt to do a personal examination of themselves and determine their next steps based on the information provided.

  2. So nice to see an article which presents both sides of each option. Debt can be an overwhelming weight to carry, and as you mentioned, most Americans have quite a large amount. It’s nice to see that there are options to maintain and manage debt, but also that there’s reason to use caution when dealing with financial assistance in any regard. Thanks for the thought provoking read, it certainly offers food for thought!

  3. It is true that the bankruptcy process presents some tremendous benefits, but also some serious downsides. Not only does it stain your credit history, but the process is also complicated and expensive — expect to pay hundreds of dollars in filing fees, and that’s without a lawyer!

  4. There is no doubt that when it comes to severe financial troubles, the route in which to go is very personal and is determined by a case-by-case basis – and can be a very difficult thing to go through. Therefore, I think it’s fantastic that this article is showing those that are having financial difficulties that there are, in fact, options. For instance, while it’s usually the first go-to, declaring bankruptcy really is not for everyone. Debt settlement is another interesting option and through reading this article, I can see that it definitely has its advantages – particularly for people who are in $10,000 or less worth of debt. But, if the amount of debt someone has is indeed over that amount – declaring bankruptcy may be the more appropriate route, seeing as the expense of debt settlement may be even more expensive overall compared to that of declaring bankruptcy. And this is exactly the kind of information that individuals in these tough financial situations need to know in order to make the best, most informed decision for themselves.

  5. Wow, the thought of all that debt must be very stressful. It is good to know that there are some options when people are in financial trouble like that. Thanks for breaking it down.

  6. This was such an informative, and well-written post. Not only is it informative about what to do in this type of situation, it’s also reassuring knowing that bankruptcy isn’t necessarily your only option. It’s all about deciding if it’s the right approach to figuring out your situation. I’ll definitely be coming back to this blog to check out some more financially savvy advice!

  7. Glad I stumbled upon this website! I needed information about debt settlement, and I was satisfied with this article.

  8. This article was very informative for me. I hardly knew anything about debt settlement. It is nice to know bankruptcy is not the only option available for eliminating debt.

  9. Having to come up with new options to rid of financial debts is great. However, as what the article explained, debt settlement seems to be an option only for those who have less than $10k in debt. It’s a good option to consider. For people with more debts, bankruptcy seems to be the only probable way. I’ll keep this in mind especially now when my debts are slowly piling up, thanks!

    1. Hi Sam, thank you for your comment. Oftentimes you can have more than 10k debt to do a debt settlement, but if you have significantly more debt, it just may not be the best option.

  10. Great information for such a short article! Simple and easy to understand the differences in possible options for out of control debt.

  11. It’s definitely interesting and resourceful to know that there are debt settlement businesses out there for individuals struggling with debt, needing advice, options, assistance, guidelines, etc. However, it was insightful to see this contrasted with declaring “bankruptcy,” especially since the term has such a negative connotation to it. Seeing how the court system, and the lender, still have power over your assets despite paying the debt settler, this article is informative in letting people know of the risks. Perhaps different laws should be constructed around protecting the assets of an individual taking debt settlement route, as it seems rather risky, particularly for someone already in financial trouble.

  12. I like how the two options were clearly presented here. I would have to agree that debt settlement is the best option for individuals or businesses with $10k or less unsecured debt. For small startup businesses facing a small financial setback, this is a great option to look into. However, since both options pose a risk whichever one chooses, it’s still best to determine what would work for you and your business in the long run.

  13. This is a very informative and helpful blog. Debts are sometimes that needs to be taken care of and I learned from this blog. Thank you for posting this!

  14. Being in debt can be really frustrating. As if that’s not enough, some clever people have found a way to “redeem” your situation by sinking their fangs into your skin and holding on tight as they suck your monetary income for many years. This is such an informative and thought-provoking piece.

  15. Benny says: Whew! It’s like being caught between a rock and a hard place. But with great reluctance, I’d go for debt settlement because with bankruptcy, your credit worthiness will forever be in question, no matter what the rules say. How can lenders ever have any confidence in you?

    1. Well Benhilda, there has been many cases where people have rebuilt their credit after bankruptcy being that they now have a clean slate, so it is possible, but a long road to say the least.

  16. This is a very helpful information especially if you are experiencing a somewhat similar situation. It’s a good thing I came across your article. Keep them coming.

  17. This is quite informative and it raises a lot of questions. Makes you think and I am glad to have learned something new today.

  18. being in debt is already a mental stress in and of itself, so carefully considering the cons and pros of declaring bankruptcy or going to debt settlement providers must be carefully weighed. but in my opinion declaring bankruptcy is way much better than the latter. because what if you cease paying them, so they may file a lawsuit against you, giving you another burden

  19. I can’t believe how timely this article is for me. College debt has made a lot of crippling inroads into my finances, and its something I can’t escape from. I don’t have the option to file for Chapter 7 unless I seriously want to put an end to my career. I’ll think about looking into debt settlement companies as another resort. Who knows, maybe I’ll be able to be debt free before I retire. *sigh.* Still, thanks for laying down the options. It gives another perspective to think on.

  20. Dealing with debt definitely is worth more than just an ounce of ones thoughts. This article is indeed a helpful reminder on the things to consider before deciding on the resolve to make relative to debts.

  21. It is good to know that there are articles like this. Options were discussed. This will surely help someone if he would file bankruptcy or will choose the other way since facts are well presented for each option .

  22. the topic is very informative, I did not know about that 10-15 years what interest one pays. in this blog I again learn about things in life

  23. Debt is something nobody wants to fall in it but most of us find ourselves in debt and bankruptcy,so this article is all about debt and how things needs to be done in debt,overall it is very helpful article……

  24. Great information, can u imagine over 10-15 years what interst one pays? You know the companies never tell us this. Also settleling a debt is a great way to save money as well. Thanks for the great information.

    1. Yes the interest over 10 – 15 years is astronomical!…which is why many people in debt feel hopeless. But there are options as you can see.

  25. Good writing, this article contains many answers on benefits and drawbacks, declaring bankruptcy is bad for every company, they can do more with debt settling and working well.

  26. this article is very insightful, especially where one has no recourse to settling his debts through the usual channels of family and friends. I doubt if I can opt for debt settlement against filing for bankruptcy, especially where the field is unregulated yet by the government. I’d go for debt settlement when all else fails.

  27. It is very important for every individual to have an idea regarding Debt Settlement and bankruptcy. With the recent global economy falling, this article is sure to help the people in taking the right decisions. A must read article for all who have doubts regarding Debt Settlement and Bankruptcy.

  28. It is so god to be able to read this article. One can get enlightened from this.Definitely an article worth everyone’s attention.

  29. This blog is so helpful. As currently the global economy doesn’t go well. I hope to pay attention to deal with my fiance.

Leave a Reply

Your email address will not be published. Required fields are marked *