Most people have heard the term “bankruptcy” before, although it’s usually associated with high-profile debt relief cases and the extravagant spending habits of the wildly wealthy. In actuality, more than 60% of those who file for bankruptcy make less than $30,000 a year and face crushing debts, ranging from medical bills to daily family expenses. For people struggling to make ends meet and feed their families, filing for bankruptcy can provide desperately needed financial freedom. But it isn’t the right option for everyone, and in some cases, debt settlement may be a better bet for your financial situation. Get the information you need to make a strategic decision, from our seasoned bankruptcy attorneys at The Buchalter Law Group.
The Biggest Differences Between Debt Settlement and Bankruptcy
Both bankruptcy and debt settlement can help you get out of debt, so what exactly is the difference between them? The most glaring disparity between the two is that bankruptcy can absolve you of your debt with no money being paid to your creditors in certain instances, whereas debt settlement requires a lump sum or payments to be made to resolve the debt. While bankruptcy may sound better on the surface, there tend to be more strings attached – and determining whether you should file for Chapter 7 or Chapter 13 requires a deeper understanding of the law. Below, we’ll discuss the pros and cons of each approach.
The Pros and Cons of Debt Settlement
PROS: Debt settlement has many benefits to consider. Once a lawyer has reviewed the terms of the settlement and negotiated a fair rate with your creditors, you may receive deep discounts on your original debt. It also does not impact your credit score as deeply as bankruptcy does, and it can often take less time for your score to bounce back.
CONS: There are no guarantees on how much, if any, of a discount on the debt you will receive. Also, there are tax consequences when a debt is settled for less than the full amount owed. It is important to speak with skilled legal counsel who understands all of these nuances that come with settling debt. Additionally, you must be able and willing to cover the costs quickly: Debt settlements are dependent on your ability to pay the full amount at the new discounted rate. It doesn’t matter how great of a reduction on your debt an attorney may get for you if the funds to pay that reduced amount are not available.
The Pros and Cons of Filing Bankruptcy
PROS: Bankruptcy also has many benefits, especially if you are willing to commit to long-term debt relief solutions. Unlike debt settlement, bankruptcy gives you a “clean slate” on everything, with the exception of certain tax debts and most student loans. You can free yourself from mortgage payments, credit cards, and all other consumer debt forms, for good. It’s also a myth that bankruptcy will prevent you from future loans, as you can often get a home loan as early as two years after you file. The ability to obtain a car loan is possible much sooner depending on your particular situation.
CONS: Bankruptcy isn’t for everyone, though, and you must pass the requirements for Chapter 7 or Chapter 13 bankruptcy. Your credit score will also drop after filing, and although those seeking bankruptcy don’t typically have good credit, you can be put in an extremely dire situation if you continue to accrue debt after bankruptcy.
While it’s helpful to know the differences between these two options, there’s no replacement for skilled legal counsel in a bankruptcy case. If you’re ready to discuss debt relief strategies, contact our Brevard County-based lawyers at The Buchalter Law Group. We’ve spent more than 35 years helping clients like you, and offering direct, personalized attention for bankruptcy cases in Florida.
Get your free case evaluation today when you submit our online form. We serve clients in Brevard, Lake, Orange, Osceola, Seminole, and Volusia counties.