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Debt settlement vs bankruptcy - 7 Tips to choose the right option

If you think that only bankruptcy can rescue you from overburdened debt, then you are wrong. There are other options, too. Debt settlement is such an option. It can help you get rid of your debts fast. Here are 6 ways which can help you make the decision which is best suitable for you - Debt settlement or Bankruptcy.


Settle debt or bankruptcy - A brief idea

If you’re thinking is it better to file bankruptcy or settle debt, than at first you need to have some idea regarding these debt relief options.

Settling your debts

Debt settlement can help you get rid of your debts by paying less than what you owe. You can take help of a settlement company which can negotiate with your creditors to reduce the payoff amount. You can get rid of your debts by paying a single amount to the settlement company every month. You can go for credit card debt settlement along with settling your other unsecured bills. You can choose between non profit debt settlement and for profit debt settlement options.

Read More . . .

Filing a bankruptcy

You can go for pre-bankruptcy counseling if you’re struggling with your secured and unsecured debts. Bankruptcy is a debt relief strategy through which you get discharge from some or all of your debts under the protection of the bankruptcy court. There are 2 types of bankruptcy options available depending on what you qualify for - Chapter 7 or Chapter 13 bankruptcy.

Read More . . .

What’s better - Debt settlement or bankruptcy

Here are 6 ways which can help you make the decision whether it is better to file bankruptcy or go for debt settlement.

Settlement

If unsecured debts are bothering you and you want to get rid of them fast. Better option if only unsecured bills.
1

Consider your total debt amount

Calculate how much you owe in total including your unsecured and secured bills.

Bankruptcy

If you want to get rid of your unsecured as well as secured debt.

Settlement

Can opt for this if you can save a certain amount per month, after meeting your daily necessities, to repay debts.
2

Calculate your income

Consider your paycheck along with rental income, bank savings, investment returns, alimony and/or child support, etc. to calculate your total income.

Bankruptcy

Suitable if you’re struggling to save after meeting your daily necessities. However, you need to meet Chapter 7 or 13 qualifying criteria to file bankruptcy.

Settlement

You can settle your debts with your creditors on your own.
3

Qualify for settlement program?

To repay debts through a settlement program, usually you need to have a certain amount of outstanding debt (varies from one company to another).

Bankruptcy

You can approach a bankruptcy lawyer if you don’t qualify for a settlement program.

Settlement

Though it’s difficult, yet you can negotiate with your creditors to reduce the amount of your private student loans.
4

Types of debts you have

Bankruptcy cannot erase all your debts and so do settlement, especially regarding student loans.

Bankruptcy

It is difficult to get discharge from student loans unless you’re facing a major financial hardship.

Settlement

You may have to pay tax on the forgiven debt amount.
5

Check out the tax consequences

There are tax consequences based on how you’re paying off your debts.

Bankruptcy

Discharged debts in bankruptcy are usually not regarded as taxable income.

Settlement

A negative item stays on credit report for 7 years.
6

Impact on credit score

Both settlement and bankruptcy have negative impacts on credit.

Bankruptcy

A Chapter 7 Bankruptcy stays on credit report for 10 years and a Chapter 13 bankruptcy appears on report for 7 years.


Choose debt settlement if…

  • You want to repay credit card debt or other unsecured bills
  • You want to get rid of your debts fast
  • You can get complete professional guidance by working with a representative of a reliable settlement company
  • You’ll have to go for credit repair after debt settlement

Choose bankruptcy if…

  • You have both secured and unsecured bills
  • Want to make a fresh financial start; you can start afresh once you get discharge.
  • You will get complete professional guidance as you’ll work with a lawyer to file bankruptcy.
  • Once you get discharge from your debts, you’ll have to work hard to prove your creditworthiness before you apply for a loan.

You can avoid bankruptcy or debt settlement by consolidating your credit card debts, if your financial situation permits you to do so.