When individuals find themselves struggling with debt, two options should be compared: declaring bankruptcy and settling unsecured debt. Each avenue has pros and cons. As an experienced New Haven, CT bankruptcy lawyer – including those who practice at The Law Offices of Neil Crane – can confirm, understanding your options in detail will help you choose the avenue that is most appropriate for your unique situation.
Advantages of Settling Debt
Settling debt is often a quicker process than filing for bankruptcy is. A debt settlement company can negotiate with creditors on your behalf, and you’ll only have to pay a fraction of your debt, if these efforts are successful.
Disadvantages of Settling Debt
With debt settlement, there’s the possibility that creditors will be unwilling to consider your proposal. Debt settlement specialists can be expensive, and it’s essentially guaranteed that your credit score will be negatively impacted. Further, forgiven amounts will likely be treated as income by the government; therefore, you’ll be required to pay taxes on monies you no longer owe.
Advantages of Declaring Bankruptcy
The greatest benefit of filing for Chapter 7 is that it clears most unsecured debts, giving you a clean slate to begin anew. Creditors are prevented from pursuing further payments. Chapter 13 protects your property, including assets you depend on, such as your car and house. This process also reorganizes your debts to make repayment more manageable. Under both bankruptcy scenarios, you are not required to pay taxes on unpaid debts.
Disadvantages of Declaring Bankruptcy
Because doing so stays on your credit report for up to a decade and can severely limit your future borrowing opportunities, declaring bankruptcy should never be treated lightly. Under Chapter 13, you’ll be required to follow a court-ordered payment plan that lasts anywhere between three and five years. In some states, your property may still be seized under Chapter 7. Avoid unpleasant surprises by researching the laws specific to your region.
Weighing Debt Settlement Versus Bankruptcy
The resolution that’s best for you will depend heavily upon the circumstances that you’re facing. Sometimes, the correct path isn’t readily apparent. If, after analyzing your alternatives, you elect to declare bankruptcy, hire a lawyer who is familiar with the process so that filing goes as smoothly as possible. Depending on the details of your situation, erasing debt through bankruptcy may be the best financial decision you ever make.