There is more than one way to handle debt that’s become too enormous to pay down quickly. Bankruptcy is one such approach. There’s another tactic known as debt settlement. Each has pros and cons, and each is appropriate for some people and not for others. Our attorneys will help you learn what the differences are and who they each work best for. Note: Both bankruptcy and debt settlement will initially hurt credit scores. But if the debtor can avoid new debt, those poor scores will not be permanent.
What Is Bankruptcy?
Bankruptcy involves filing with a bankruptcy court to have debt either discharged or restructured in a repayment plan. There are two forms of bankruptcy:
- Chapter 7. This type can wipe away most unsecured debt, which is debt that has nothing held against it for collateral, such as a credit card or medical bill.
- Chapter 13. This repayment plan attempts to have most or all of the debt eventually paid back.
Who Should Consider Bankruptcy?
There are several situations in which bankruptcy can be the best option.
- Someone has lost their job and doesn’t have the means to make payments.
- There’s a risk of foreclosure on a home, which chapter 13 may prevent.
- The debt is so high it’s going to take several years to possibly repay.
- All other forms of debt relief or negotiation haven’t worked.
- The only way to pay the debts is to take funds out of retirement accounts, some of which are protected in bankruptcy courts.
Bankruptcy is a highly complex area of law, and an experienced bankruptcy lawyer should be brought in as early as possible to ensure the process goes as smoothly as it can.
What Is Debt Settlement?
Debt settlement doesn’t go through court. It involves negotiating directly with creditors to reduce the amount owed. That may be negotiated to be paid as a lump sum or several sums over a specific period, such as six months.
Creditors are often willing to consider these types of negotiations because they know that if they don’t, the debtor could pursue bankruptcy. These companies often view getting some of the debt repaid as better than potentially having it all cleared in court.
Who Should Consider Debt Settlement?
Here are scenarios when debt settlement should be considered.
Bankruptcy proceedings aren’t in place, and the debtor wants to avoid them.
The debtor has an income they can rely on that will allow them to stay in their housing and keep food on the table while making the payment(s).
A repayment plan can be negotiated that both the debtor and creditors agree will work.
Let Us Advise You
If you or someone you know needs help with debt settlement or filing for bankruptcy, call us at 708-575-1500 to work with an experienced foreclosure and bankruptcy law attorney.