Should I File Bankruptcy or Try Debt Settlement?
You have probably seen many television advertisements for debt settlement firms. These companies state that they can help you settle your debt for pennies on the dollar and avoid bankruptcy. Should you try debt settlement before filing bankruptcy? Will debt settlement harm your credit score less than bankruptcy? Could debt settlement affect your ability to file bankruptcy? These are all questions you should ask before you make any type of decision regarding how to handle your debt.
Bankruptcy vs. Debt Settlement
What are the differences between bankruptcy and debt settlement? This chart will help you see how these two processes are similar and how they are different.
|Requirements||Requirements for income, value of assets and time elapsed since last bankruptcy filing or discharge||No requirements; each company uses its own standards|
|Protection||Provides legal protection from creditor harassment and lawsuits||Provides no legal protection; dependent on agreements with creditors|
|Governance||Governed by federal law and administered by federal judges||Some states have laws that affect debt settlement companies, but there is no national standard beyond that affecting any company that uses information from credit reports under the Fair Credit Reporting Act|
|Effect on Credit Score||Credit score typically drops by at least 200 points for several years. However, some credit may be available immediately after discharge at a higher cost.||Effect on credit score depends on how creditors report the settlement. Typically lowers credit score somewhat. Debtor keeps access to available credit.|
|Cost||Attorney’s fees and filing costs||Can be significant over the life of the payment plan; generally a percentage of the total monthly payment|
|Monthly Payment Necessary||Chapter 7 does not require monthly payment, but Chapter 13 does||Requires regular monthly payments to a debt consolidation service; failure to make on-time payments could jeopardize agreement|
|Discharge||Debtors are not required to pay off unsecured debt in most cases to receive a discharge||Debtors must finish paying all balances in order to complete repayment plan|
In some cases, debt consolidation or management may be a better choice, but in some cases bankruptcy has more benefits. It is important to know the facts based on your own situation to decide which route to take. Oswalt Law Group can help you decide if bankruptcy is the right decision for you. Contact us today to learn more about how to find out if bankruptcy is the right way to handle your debt issues.