Debt settlement and bankruptcy are solutions to the same problem, they are two of the most direct methods to get out of debt, but they each come with their own advantages and disadvantages, so choosing the right one for you might be tricky. If your debts are so massive that you cannot imagine repaying them, it’s time to evaluate both options as you look to retire your credit health and financial well-being.
Bankruptcy can offer the fastest path out of debt, but the long-term impact on your creditworthiness is severe. A bankruptcy will stay on your credit report for 7-10 years, which will greatly impede your ability to get a loan, receive a credit card or buy a home. Bankruptcy, which is adjudicated in federal court, can either wipe out your personal debt (Chapter 7) or creates a 3-5 year plan for repaying creditors (Chapter 13).
If you’re having trouble paying your bills, consider these possibilities before considering filing for bankruptcy:
Talk with your creditors. They may be willing to work out a modified payment plan.
Contact a credit counseling service. These organizations work with you and your creditors to develop debt repayment plans. Such plans require you to deposit money each month with the counseling service. The service then pays your creditors. Some nonprofit organizations charge little or nothing for their services.
Carefully consider all your options before you take out a second mortgage or home equity line of credit. While these loans may allow you to consolidate your debt, they also require your home as collateral.
If none of these options is possible, bankruptcy may be the likely alternative. There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. Filing fees are several hundred dollars.
Debt settlement doesn’t require a court filing and, unlike bankruptcy, can often be handled without a lawyer or financial counseling. A settlement is a deal you negotiate with creditors to pay less than the amount owed, usually with a lump-sum payment or short-term payment plan.
Both bankruptcy and debt settlement can reduce your creditworthiness and lower your credit score for years. Bankruptcy, no matter which chapter you file under, is certain to bring down your score.
Before choosing a particular option, speak to a trusted consumer lawyer today!
CALL 718-674-1245 or message us here.