We will give you information in this article that will allow you to make a decision between debt relief and bankruptcy. If you want more information on your situation, we can discuss it with you.
Far too many Americans are struggling to stay alive by drowning in personal debt. The intersection of increased consumer spending, increased housing and transportation costs, stagnant wages, and staggering credit card debt is a recipe for debt disaster.
Debt relief and bankruptcy are the two most prevalent solutions to such times of distress. These steps are the same, but they go about their outcomes in opposite directions.
Discover what the distinctions are between these two options and how they will affect your financial life in the near future and long term.
In a Hurry? Dial +18-503-850-342 Now!What is Debt Relief?
It can potentially mean a thousand different things, but most importantly, it is a reduction term that can be applied to products, services, or tools that can be utilized to lower your debt. It can potentially be a list of methods that will alter the terms of your debt or make it easier to pay.
Debt Relief can:
- Decrease the amount of debt
- Decrease the interest rate of the debt
- Roll several debts into one lump sum payment
Debt Relief is an option to reduce your monthly cost, without defaulting on your commitment and continuing toward long-term financial freedom. There are many forms of debt relief. There are several options for debt relief. They are debt settlement, consolidation, credit counseling, and bankruptcy. The best one will depend on what you need assistance with the most.
The Pros Of Debt Relief
All such people who face problems settling their payments against their monthly bills can easily attain debt relief. It is one of the most feasible solutions that helps them with a fresh start. Debt relief has many negative effects, such as damage to the credit, taxation, fees, and penalties. The negative and positive effects have been explained in detail below.
Avoidance of Bankruptcy
A debt relief plan is a good alternative to manage your debts without going into bankruptcy. This can result in long-term and serious repercussions.
Lower Interest and Monthly Payments
Debt relief methods like a debt consolidation loan or debt management plan can lower the interest you pay every month or your monthly payment.
A quicker debt repayment, debt consolidation programs can get you out of debt sooner than making only the minimum payments.
Seek a Professional
Credit counseling and debt management plans can show you how to establish a budget you can afford, manage your spending, repair your credit report, and find debt relief strategies.
Free service is offered. Although some agencies charge fees, not-for-profit agencies offer credit counseling free of charge.
Disadvantages of Debt Relief
Potential Harm to Your Score
The settlement of debts will reduce your score. Even if the debt is paid, the action will stay on your credit report for years. This will make it difficult to get good loans in the future.
Debt Relief Service Fees
All debt relief services have a fee. You will be charged interest, late fees, and other fees in addition to the service fees and finance fees. This is the standard with debt settlement.
No Promise No Guarantee
While most lenders would rather collaborate with you on paying off debt, no assurance that they won’t or can’t must be made. Your offers to lenders are not assured to be fulfilled.
Tax Implications
The IRS will tax amounts over $600 of cancelled debts as income when they are being cancelled by a creditor in full or partially. You will be taxed eventually or sooner. You will be issued a 1099-C by the creditor, showing your initial debt and the amount cancelled.
More Debt Can Be Borrowed
Interest and fees can still build up during the negotiation period of a debt-settlement program. This can add to your overall amount of debt.
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The Differences Between Debt Relief and Bankruptcy
You need to know the most important differences between debt relief and bankruptcy.
The main differences between the two are:
The Legal Process
Bankruptcy is a legal court procedure under the aegis of the federal bankruptcy court. It can also require a visit to the courthouse in front of a judge. You will need an attorney to file for bankruptcy. A filing is a public document. Solutions to debt relief, such as debt negotiation, are usually confidential negotiations between you (or the company you hired to negotiate your debt) and your creditors.
Impact on Credit
Either choice will adversely affect your credit rating. But bankruptcy is longer and worse — 7 to 10 years for staying on your credit record. Your credit score will recover faster under debt relief than under bankruptcy.
Debt Release
Under bankruptcy, you may have all the non-secured debts canceled. That is not what happens under debt relief. You will still be making payments on some of your debt.
Asset Protection
Chapter 13 bankruptcy lets you keep your possessions. Chapter 7 bankruptcy, however, compels you to sell off non-exempt property to pay your creditors. Debt relief, nonetheless, does not force you to sell any of your assets to pay your creditors.
Duration in Filing
Chapter 7 bankruptcy takes three to six months to file, and Chapter 13 bankruptcy takes three to five years. How long it will take to get debt relief varies depending on your case.
Creditors’ Participation
Your creditors will stop collection efforts outright after your bankruptcy filing if they are subject to the court’s jurisdiction. Debt relief plans, however, have to engage your creditors voluntarily and need not agree to your terms.
Costs and Other Fees
Filing for bankruptcy entails the services of an attorney and payment of up-front court fees. This is expensive. Debt relief plans may be cheaper in advance, but can cost you more in the long term (service fee, late fee, and penalty).
Bottom Line!
Anyone who is finding it hard to manage growing debt can opt for both debt relief and bankruptcy. You will be asked to consider the advantages and disadvantages of both cures before opting for a long-term solution.
Debt Consolidation, Debt Settlement, and any other Debt Settlement can provide you with some breathing room while restructuring your finances and clearing your debts.
You may also talk with a Lawyer like Bruner Wright PA if you are not sure what to do. We are the best equipped to advise you and give the specific facts of your case.
In a Hurry? Dial +18-503-850-342 Now!