If you feel like you’re drowning in debt, you’ve probably considered bankruptcy. While bankruptcy can eliminate certain debts, isn’t the right solution for everyone.
Advantages and Disadvantages of Debt Settlement
In short, debt settlement allows consumers to alleviate the burden of debt without taking their case to court. This appeals to many people, especially since the bankruptcy process can be tedious and overwhelming.
- How debt settlement works: In a debt settlement agreement, the debtor agrees to pay a sum of money; in exchange, the creditor agrees to disregard certain debts.
The biggest benefit to settling your debts is complete and immediate relief from your financial stress. In many cases, it does not damage your credit as severely as filing for bankruptcy. However, debt settlement comes with a number of drawbacks as well.
By law, the written-off debts cannot exceed a certain amount. If they do, the difference becomes taxable income. In this scenario, you could end up owning taxes on some of the forgiven debts. Depending on your unique financial situation, this could be quite expensive.
Unlike bankruptcy, debts settlement does not offer consumers legal protection from creditor lawsuits. When you file for bankruptcy, creditors are legally obligated to halt all attempts to collect payment, such as creditor calls or legal action against you.
If you decide to avoid court, creditors can still sue for your outstanding debts.
How to Make the Right Choice for Your Financial Future
Every case is different. Talking to a lawyer about your financial situation and goals can help you understand the best path for you: debt settlement or bankruptcy.
At Wadhwani & Shanfeld, our Los Angeles bankruptcy attorneys can help you make an informed decision. If bankruptcy is the best solution, we can guide you through legal process ahead. If your financial situation lends itself to debt settlement, an attorney from our firm can negotiate with creditors on your behalf to help you achieve a favorable settlement.