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Bankruptcy or Debt Settlement?

People who are on the fence about bankruptcy also tend to look at debt settlement as an alternate solution. There are definitely situations where a bankruptcy is less favorable than debt settlement, but you should learn the facts for both. Considering both solutions means that you should learn the process for both services including cost, effectiveness, and long term impact. To be clear, a bankruptcy is a Federal Court process upheld by the Bankruptcy Code to help individuals eliminate or manage debt in a reasonable time frame while protecting assets that are necessary to your life. A debt settlement service is hiring a company to negotiate debt settlements with your creditors on your behalf. The most important factor to consider is that a bankruptcy can eliminate all of your unsecured debt without additional payments whereas your debt settlement service may need you to pay a certain percentage of the total debt owed in order to “settle” the debt amount with your creditor.

The cost of a bankruptcy can have a wide range of prices depending on the type of bankruptcy you need and the law firm you choose to help you. Debt settlement businesses also have a wide range of pricing structures. Make sure to find out what each service includes and if there are any additional costs that could occur down the path. Most bankruptcy services have flat fee pricing available whereas debt settlement commonly has a starting fee along with a monthly service charge. Find out what that monthly service charge is going to cost you before signing on the dotted line.

The effectiveness of a bankruptcy is does depend on whether you qualify for bankruptcy, but, if you do qualify and complete the process, a Chapter 7 bankruptcy will discharge all of your unsecured debt within a few months. Debt settlement is less conclusive in that you will need to wait for your debt settlement service to conclude negotiations with your creditors to get a result. There is no standard time or result with debt settlement. It is basically dependent on what the creditors are open to negotiating with the debt settlement company. It is entirely possible for your debt settlement firm to settle some of your debts, but not all of them, or solve all your debts via settlement.

The long term impact of debt settlement can result in a wide range of conclusions. Debt settlement can result in late payments on your credit record while waiting for a resolution in negotiation with the creditors. It can result in a some creditors debts being resolved and some left over to continue to pay. In the best case scenario, debt settlement can settle all your debts by paying less than the original amount of debt in various ranges of time. New credit opportunities will be dependent on how soon you deal with any left over debts after the debt settlement service has run its course. A bankruptcy completion/discharge can leave you with no unsecured debt left over after concluding in about 3 to 4 months. While a bankruptcy is in process, no collections activities can occur under the Automatic Stay provision of the Bankruptcy Code. A bankruptcy will be on your credit record for 10 years, but you will be extended credit opportunities immediately after the bankruptcy is over. You will have an opportunity to rebuild your credit after the bankruptcy by maintaining a good payment history.

Debt settlement and bankruptcy do not need to be chosen over each other. See what you can qualify for and what you can afford by meeting with a company to help explain how their services work. If the company you meet does not explain the services well enough for you to understand, move on to another company. Don’t let the facts just pass over your head. When you are choosing an agent to represent you, you need to make sure this company can communicate with you and help you understand their product. Don’t let complicated products muddy your understanding of the result and effectiveness of the service. Choose what is best for your own specific situation!

Bankruptcy Law Professionals is a Southern California based bankruptcy law firm with locations in Orange County and Riverside. We offer free consultations to help you. Please contact us at 855 257-7671 to schedule a phone or in-person consultation with our attorneys.

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