Debt Settlement vs Bankruptcy
and why bankruptcy may be the better option
The Covid-19 pandemic has put many people all around the world in a financial struggle that nobody could have imagined. Credit cards have been maxed out and mortgage and personal loans have been defaulted on which opens the doors for a lot of unwanted creditor phone calls and law suits. With consumer debt reaching the highest we have ever seen, many hard-working people are now having to weigh their options between debt settlement and filing bankruptcy. But what people don’t know is how they may be affected by this in the long run. Many people have chosen to go into debt settlement only to realize that they put themselves in a potentially dangerous situation only to end up right where they began. However, filing bankruptcy can legally relieve you of your debts as well as all the stress that comes with it. Before making your decision, it is important to speak to a professional to make sure you are making the right choice. Below are some things to know about debt settlement and bankruptcy.
Debt settlement is when a debt settlement company will try to negotiate a settlement in an attempt to reduce the overall amount of debt that you owe, but this has a very low success rate and in the long run will leave you open to lawsuits. It is not a legal process so for a debt settlement company to try and settle your debts they must threaten your creditors that you are going to stop paying them in attempt to negotiate a settlement. Those creditors are under no legal obligation to accept your debt settlement company’s offer; therefore, they can sue you. They can then obtain a judgment against you and go after your bank accounts, attach your paycheck and more. This process will also delay resolving your most critical debt as the negotiation and payment process can take up to 2 or more years. This leaves you open to harassing phone calls and lawsuits throughout the entire process. You will also be subject to pay income tax on any unpaid debts that may be negotiated. For example, if you owe a debt in the amount of $25,000 and it is negotiated down to $15,000, the government will view the remaining $10,000 as income and you will be required to pay taxes on it. It is important to know all the pros and cons before making a decision to go into debt settlement.
Bankruptcy is your chance to legally wipe out most or all of your debts at one time which is often the best option to eliminate the exposure of potential lawsuits, judgments, bank account attachments and pay garnishments. It will even stop those unwanted and harassing creditor calls and letters. Bankruptcy can also save you from possibly losing your home to foreclosure, or your vehicle from repossession. Since the pandemic, many people have filed bankruptcy to give them the fresh start they need by being a quick and efficient solution to their debt problems. Bankruptcy is not a business negotiation, it is a legal process designed to protect consumers, and the best part is you do not have to pay taxes on the debts that are dissolved. You want to make the best decision for you and your family so it is important that you speak to a legal professional to make sure you are making the right choice. We all need to move forward, and it’s never been more important that we make the right decisions for our future.