Advantages of Bankruptcy vs. Debt Settlement

When weighing your options for handling out-of-control debt, you might consider bankruptcy, or debt settlement, or simply ignoring the collectors’ attempts to get your money.  Under the Fair Debt Collections Practices Act, creditors must leave you alone if you inform them that you do not want them to contact you regarding the money you owe them. 

Creditors know that there is little legal recourse to make you pay your debts.  Creditors also know that if they can get some money from you, that is better than getting no money from you.  For this reason, most creditors are willing to negotiate a deal with you in which you pay a smaller amount than what you owe.

Debt Settlement Drawbacks

Most debtors assume that a debt settlement will have less negative impact on their credit rating than a bankruptcy.  Unfortunately, that is not always the case.  In order to get a creditor to negotiate a bill though, creditors often require that a bill be over 90 days past due and in default.  The default will go on your credit report and is a major red flag to all future creditors. 

Debt settlement is becoming more difficult as an increasing number of creditors are refusing to negotiate because they would rather stick to their principles than offer a deal to a debtor.  Creditors have heard every sad story as to why people cannot pay their debts and unfortunately are not very sensitive to any of the debtor pleas.

Filing Bankruptcy Results in Lower Financial Cost to the Debtor

If you begin a debt settlement plan and pay your creditors either in installments over time, it will all be for nothing if you are not able to continue to make payments in full.  It is possible that once you negotiate a debt settlement, something may happen which results in your inability to make payments which can ultimately lead to bankruptcy. 

If that happens, the payments you made to the creditors before you filed for bankruptcy were a huge waste of money because if you had filed for bankruptcy from the start, you would have saved the money you paid the creditors in debt settlement negotiations. 

Filing bankruptcy from the start immediately discharges your debts and gives you a chance to start fresh paying off debts as you incur them, rather than continuing to pay off old debt while also paying current bills. 

Creditors would prefer debt settlement over bankruptcy because they get far more money through debt settlement.  For this reason, there is a great deal of pressure on consumers to choose debt settlement over bankruptcy.

How to Get Good Legal and Financial Advice

Weighing your options with regard to your mounting debt is best accomplished using the expert advice of a bankruptcy attorney.  A bankruptcy attorney can give you detailed analysis regarding your specific situation and the realistic consequences of your choices for eliminating debt. 

There are different advantages and drawbacks to filing for Chapter 7 or Chapter 13 bankruptcy as well as differences between debt settlement plans.  A thorough analysis by an attorney who knows the law will be money well-spent because it will save you time and money in the end by helping you choose the right option in eliminating your debt with the least amount of negative impact on your future.