You should think about whether bankruptcy is the best option before you agree to any settlements with creditors. Although the idea of settling for a portion of the debt may sound appealing, you should examine the actual numbers and the overall consequences. This article will explain debt settlement vs bankruptcy.
- The interest, late fees, and attorney fees may increase outstanding balances. In the case of consumer credit debt, the average rate of interest after default is between 29% and 30%. The debt will increase exponentially, easily doubling or tripling in size.
- Are you really willing to settle for 40% or 50% of your debt balance? It is unlikely.
- You may be able to pay only a fraction or all of your total debt in Chapter 7 bankruptcy.
- You would be required to repay a portion of your debts in a Chapter 13 bankruptcy. This percentage could range from 3 to 5 years. This percentage is based on your monthly income.
- Take into account the tax implications of Forgiveness of Indebtedness. While you may be able to reap the tax benefits of settlements, it is important to consider the possible tax consequences. The amount of debt forgiven may need to be declared as income on your federal income tax return. You may be subject to additional taxes depending on your tax bracket or circumstances.
- Filing for bankruptcy does not automatically trigger the release of any indebtedness issues. You will not be required to pay federal income tax on any debt you have gotten rid of in bankruptcy.
- Credit reporting and settlement: If you reach a settlement, your creditor can report on your credit reports that the debt was paid in settlement. This will affect your credit score and negatively impact your ability to get credit.
- Credit reporting and lawsuit: Even if the case is settled, credit reporting agencies will still disclose that the case exists as it is public record. Your credit score and ability to get credit will suffer.
Bankruptcy can be a complete solution. It will resolve all outstanding collection, credit card, and medical bills. To set up settlements or payment plans, you won’t have to contact each creditor individually.
Bankruptcy filings do not require you to declare any debts that were eliminated as income on your federal tax returns.
All collection efforts will be stopped if you file bankruptcy, regardless of stage. Creditors won’t be able to contact you by telephone or in writing. Creditors won’t be able to file or continue lawsuits or foreclosures, garnish wages or seize funds from any bank account, or seize any assets. It is important to understand the difference between debt settlement vs bankruptcy.
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Bruner Wright is the top-rated bankruptcy attorney in Southern Georgia. Our team has more than 30 years of experience helping people file Chapter 7 bankruptcy. Chapter 11 bankruptcy. Chapter 12 bankruptcy. Chapter 13 bankruptcy. Our practice has been very successful in helping people discharge their debts. We offer a personal service that is comprehensive and thorough in all aspects of our industry. We are responsive to the needs of our clients.
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Contact us today to schedule a consultation to find out if bankruptcy is the best option. A member of our team will review your case to help you make the right choice. We are focused on consumer bankruptcy. We want you to achieve financial stability. Know your options when it comes to debt settlement vs bankruptcy.