When it comes to financial difficulties, debt settlement or bankruptcy can both be capable solutions for getting out of a tough situation. But which one is the best for your particular situation? The answer depends on many factors that a professional should examine before making decisions. Here we’ll look at what each option entails and how they differ to better understand how to make the right choice.
What Is Debt Settlement?
Debt settlement involves negotiating with creditors to pay off debts at reduced amounts. It might involve consolidating various unsecured debts into one larger loan or having lenders forgive parts of the loans so that banks can recoup some of their money lost in the deal more quickly. This approach typically results in lower monthly payments and sometimes even lower interest rates than those originally agreed upon.
What Is Bankruptcy?
Bankruptcy is a legally declared inability or impairment of the ability to pay one’s debts as they become due. Generally, there are two main types of bankruptcy: Chapter 7 and Chapter 13.
Chapter 7 bankruptcy involves liquidation, where all non-exempt assets are sold off by trustees appointed by the court to pay back creditors as much as possible. With Chapter 13 bankruptcy, individuals must create repayment plans according to their existing income level so that creditors receive some form of payment over time without needing to withdraw funds from any other sources.
Pros & Cons
Filing for bankruptcy or engaging in debt settlement can be viable solutions for those struggling financially. Bankruptcy offers immediate protection from creditors, but it can have a negative impact on credit scores and may require disclosure on job applications or tax forms.
Debt settlement offers more tailored solutions specific to an individual’s unique situation, but it typically requires upfront payments, and any forgiven debts may still be subject to taxation. It is important to seek advice from qualified and experienced attorneys before making any definitive decisions and understand the potential outcomes associated with each option.
If you’re unsure which debt relief option is right for you, our team at Wadhwani & Shanfeld is here to help. Contact us today at (800) 996-9932 to schedule a consultation!