Bankruptcies and Debt Settlements: Know the Difference
Credit card debt can get away from the best of us. Once those balances creep up, they become harder and harder to pay down. You start to have higher monthly payments that you can’t meet, and you struggle to make the numbers drop since interest rates tack on so much every month. You may get to a point where simply paying the monthly minimum is no longer a viable solution for managing your debt.
You may start thinking about negotiating a debt settlement with your lenders, or you may be wondering if filing for bankruptcy is right for you. It’s worth taking a look at both to understand which option would likely help you the most:
To get a debt settlement, you would contact your credit card company and ask them for the settlement. You would offer an amount to satisfy the debt and close the account. For example, if you owe $15,000, you might make a settlement offer of $12,000. If the lender accepts, you arrange to pay that money, and the account will be closed.
You may have to make a lump payment to satisfy your debt, but if you owe a large amount, your lender may agree to let you make payments. Know that if you default on your payments, the lender can (and likely will) sue you for the entire amount, plus penalties. Also know that your creditor may not agree to a debt settlement if you are able to make a large lump sum amount. If you have $12,000 readily available to pay your $15,000 debt, for example, the bank may think you are more than capable of paying the full amount.
Of course, your creditor may not agree at all to a debt settlement. If you have multiple creditors, they may reject your settlement offer thinking that you can ask another lender to settle, while that bank can collect its full amount. Or, if you have assets like a home or a car, the bank may demand that you liquidate your assets to pay the debt.
Even if the bank does agree to your settlement offer, know that you may still take a hit. You may have to pay taxes on the amount that is forgiven, since it may seen as a benefit or “net income” to you.
In many cases, filing for bankruptcy may be the better option to manage your debt. If you qualify for Gilbert Chapter 7 bankruptcy, you can discharge all of your unsecured debt – credit card debt, medical bills, personal loans, and so on – without any negotiation with your creditors. Your Gilbert bankruptcy attorney will submit your bankruptcy filing to the court, which will review it and make the determination. Then you’ll be free of that debt completely, without having to pay any of it.
Chapter 7 bankruptcy also includes provisions for you protecting our assets, depending on their value. You may be able to safeguard your home, vehicle, and other personal assets so that you don’t have to sell any of them to pay your creditors.
If you can’t qualify for Chapter 7 bankruptcy based on your income, you can file for Gilbert Chapter 13 bankruptcy instead. With Chapter 13, your bankruptcy attorney will create a debt repayment plan for you that lasts between three and five years. You will make a single monthly payment to the bankruptcy court that will then be dispersed to your creditors. At the end of the repayment plan, any debt that remains may be discharged by the court.
Bankruptcy offers a lot of advantages over a debt settlement offer, and it may help you be free of your debt much more quickly. It’s worth talking to a bankruptcy attorney about your options if you find yourself struggling with debt.
Gilbert Bankruptcy Lawyers are ready to help. We help individual and business clients get free of their debt through bankruptcy protection. We will review your finances thoroughly and help you determine the best strategy to get maximum debt relief. You can start taking control of your finances and get a second start. Call us in Gilbert today to schedule a free consultation with an experienced bankruptcy attorney and learn about your options.