Why Bankruptcy Can Be Better than Debt Settlement
We see many clients who have tried working through debt settlement companies to avoid bankruptcy, only to discover that bankruptcy was the better solution for them after all. Why? There are several reasons.
Debt settlement costs you more. Even if a debt settlement company says they can settle your debt for half of what you owe, they do not do this for free. You still have to pay the debt, plus a fee – usually 15 percent of the total debt.
Creditors don’t have to settle. A debt settlement company cannot guarantee that all your creditors will agree to a settlement. If they do not, you are still responsible for the debt.
Your credit score will go down. A major portion of your credit score is dependent on paying your bills on time. If you are paying through a debt settlement company, even with the agreement of your creditors, your payments are still reflected on your credit report as late.
So how is bankruptcy a better solution than debt settlement? First, it will cost you less. You are not paying any fees to a middle party to settle your debt.
If you file bankruptcy, your creditors are obligated to follow bankruptcy law. If you file Chapter 7 bankruptcy, you pay nothing to your creditors. If you file Chapter 13 bankruptcy, the court will decide, based on your current income, what you can pay creditors and the process will be managed through a court-appointed trustee.
And even though bankruptcy does affect your credit score, once the bankruptcy has been discharged, you can start rebuilding your credit immediately – which is usually easier to do when you have the financial resources available now that your debt has been wiped out through the bankruptcy process.
Greg Gilbert
Keith Maynard
