Compare Debt Settlement or Bankruptcy. Which is best for you? Lets begin by looking at what these do to your credit.
1. Debt Settlement or Bankruptcy: Your credit
You credit is wrecked either way, so there is probably no meaningful credit score difference between settlements vs bankruptcy.
2. Debt Settlement or Bankruptcy: Money out of your pocket
Typical attorney fees plus court costs for an average, simple Chapter 7 BK will come in around $1500, and often it will be even less. The average debt settlement will cost about 50% of each debt that you settle. Sometimes less, but sometimes more. If you want to hire someone to settle for you, expect additional fees of $2500 to $5000.
Most debts that are put into Chapter 7 BK get wiped out without having to pay anything. However, you will pay back your debts in a settlement program for about 50% on the dollar.
3. Debt Settlement or Bankruptcy: Success Ratio
I looked but I can’t find any statistics for the success of debt settlement cases. But I can tell you that in my Los Angeles bankruptcy law practice, we get many clients who come to us after the failure of a debt settlement program.
The typical experience for such clients is that their settlement company settled only one or two small debts, and the client had to drop their program after getting served with a collection lawsuit.
I can tell you that almost all Chapter 7 bankruptcy cases filed with attorney representation are successful; without a lawyer about 55% of the cases will be successful.
4. Debt Settlement or Bankruptcy: Which is More Practical
Debt settlements normally happen only when you already have a lump sum of money to pay all at once. If you owe $50,000 in debts, you need at least $25,000 available for settlement payments. Most people who who express an interest in doing settlements are simply not candidates. That’s because they have the desire to pay, but not the cash means to make it happen.
Debt settlement programs are prone to failure because they don’t deliver what they promise. Here’s why that is. The average customer is not able to save up settlement money fast enough to keep up with the accumulating interest on the debts and in time to stop creditors from suing them.
5. Debt Settlement or Bankruptcy: Who is the right candidate?
The best candidate for debt settlement is a person who for various reasons should not file any kind of bankruptcy case because of valuable assets or the risk that it will upset complex financial arrangements. The right candidate for bankruptcy is normally anybody who is broke, living paycheck to paycheck.
6. Debt Settlement or Bankruptcy: How it Effects Your Income taxes
The amount of money that gets forgiven in a debt settlement agreement might be taxable as income for some individuals. But there is no tax charged to you on the debts that you discharge in bankruptcy.
Talk to a professional, for free. Call 800-477-3111. Ask for Jeff Wishman or for Leon Bayer.