Should I file for bankruptcy? Or do I need debt relief? If you’ve asked yourself these questions and you’re not sure what to do, don’t worry. We’re here to help you with this decision.
Learn the differences between bankruptcy and debt relief. Find out the benefits and disadvantages for both choices. Get educated and decide which of the two is right for you.
We hope you enjoy this article and it helps you figure out if you should file for bankruptcy or seek debt relief. If you have any questions, feel free to contact us directly.
What is Bankruptcy?
Bankruptcy is a legal process where an individual or business can discharge their delinquent debt. The person or persons seeking debt relief must petition the federal bankruptcy court. During this process, it may be advantageous for the businesses or individuals to retain the counsel of a bankruptcy lawyer.
There are two ways that a person or organization may file for bankruptcy:
- Chapter 7 Bankruptcy:
- Chapter 13 Bankruptcy:
The person or business responsible for the debt (the trustee) must liquidate (sell) their assets in an effort to repay the debt. Certain possessions and properties may be exempt from this remuneration. Not everyone is eligible for Chapter 7 bankruptcy. The type of debt and the property you possess may affect your eligibility. For individuals and business, there are certain kinds of debt that cannot be discharged. These include income taxes, student loans, child support and alimony.
To qualify for Chapter 13 Bankruptcy, an individual must have a proven source of consistent income. They agree to use a portion of this money to repay their debts. The amount they are required to pay is dependent on how much they earn. Chapter 13 bankruptcy can be a way for people to avoid foreclosure or repossession while repaying debts on a house or vehicle.
Pros of Filing for Bankruptcy
- Stop Contact from Creditors:
- Get Rid of Debt Quick:
- A Clean Slate:
Say goodbye to those harassing phone calls. Once you file for bankruptcy, debt collectors will no longer contact you. Creditors are prohibited from collecting on a debt after the borrower has filed for bankruptcy. This is called an automatic stay.
When you file for Chapter 13 bankruptcy, your debts will be cleared within a 3 – 5 year period. If you qualify for Chapter 7 bankruptcy, you might be able to clear your debt in as little as 4 months.
A few years after your bankruptcy has been filed, you’ll get a “fresh start” with many creditors. You will still have to repair your credit, but you’ll no longer have your old debts hanging over you.
Cons of Filing for Bankruptcy
- Credit Score Suffers:
When you have a poor credit score, it can be difficult to establish a line of credit or get a loan. When you are able to borrow, you won’t get good interest rates. With Chapter 13 bankruptcy, the filing will be on your credit report for seven years. If you file for Chapter 7, it will be on your report for ten years.
Depending on the type of bankruptcy you file for and the terms, the items your purchased with your credit may be subject for repossession. This can be especially challenging in the case of mortgages and foreclosures.
Not everyone qualifies for bankruptcy. The court can reject your application based on income and other factors. To ensure you get the best chance at bankruptcy, it’s a good idea to get a bankruptcy attorney.
What Is Debt Relief?
Debt relief is an alternative to bankruptcy where a third party company (a debt settlement agency) helps you consolidate the amount of debt you owe. With debt relief, it is possible to arrange a payment plan where you may pay less than the original amount owed.
In order to settle a debt this way, a borrower must already be delinquent in their payment. A creditor evaluates the borrower as unlikely to make good on the full amount of the debt. Only then will they offer a compromise.
A word of caution: many agencies and companies that advertise debt relief programs are actually offering bankruptcy. Be aware of what you’re getting into. A professional bankruptcy attorney can help you avoid these pitfalls.
Pros of Seeking for Debt Relief
- Negotiate Payment Terms:
- Protect Your Credit:
If a creditor agrees to an alleviation of your debts, you can schedule a payment plan that works for you. The lender would rather receive a portion of the debt over an extended period than receive no repayment at all. Debt relief helps you achieve a cooperative solution with your creditors.
Because you’re not filing for bankruptcy, your credit report doesn’t take any additional damage. However, in order to get debt relief, a borrower must already be delinquent with their debt – which means their credit has already suffered.
Cons of Seeking for Debt Relief
- False Advertising:
- Must Be Delinquent:
Unfortunately, many companies that advertise debt relief programs do not deliver on their promises. They’re just offering bankruptcy filing with their fees attached. Get advice from a bankruptcy attorney and make sure you’re in the right program.
In order for a creditor to offer any kind of debt settlement, they need to see the value in receiving partial payment. They need to believe that it’s a better to bet to get a portion of what you owe than anything at all. Not every creditor will want to work with you.
Bankruptcy or Debt Relief – Which is Right For You?
What kind of program you choose depends on the type of debt you have and your ability to repay. Hopefully, this article will help you figure out which option you should pursue.
Whether you file for bankruptcy or pursue debt relief, a professional bankruptcy lawyer can help guide you through the process. If you’re behind on debt and need help, contact us. We will help you navigate this process and help you choose the right program for you.