When someone has entered a season of extreme financial difficulty, they are often faced with the decision between debt settlement and bankruptcy in order to pay their debts. While many people actively avoid bankruptcy in favor of debt settlement, it is important to understand both options before making a final decision.
The main objective of the debt settlement process is to negotiate with creditors to allow you to pay back your debts for less than you owe. It begins by approaching a debt settlement company to decide how much you are able to afford month to month. You will then begin to make monthly payments to an escrow account that is held by the debt settlement company.
Once you have built up a substantial amount within the escrow account, the debt settlement company will reach out to your creditor(s) to make an offer. This may sound easy enough, but there is one major issue: your creditor(s) may not be willing to work with you in the first place.
If they choose to reject the offer put forth by your debt settlement company, it means you have spent valuable time and money paying the debt settlement company without solving any of your own financial problems.
There are also possible tax consequences associated with debt settlement. If you are able to reach a settlement agreement with your creditors, the IRS will most likely consider the reduction in debt as income, and tax you as such, leaving you with a greater tax burden s at the end of the year.
Why Choose Bankruptcy?
Bankruptcy is a method of not only debt reduction but debt elimination. When a discharge is gained during the bankruptcy process you will never have to worry about those debts again, and creditors will no longer be able to harass you for repayment. The discharge you gain from bankruptcy is also not taxable by the IRS, giving you true freedom from your debt at the end of the process.
There are two main types of consumer bankruptcy, Chapters 7 and 13. Both chapters pursue debt relief through different methods, but are able to achieve the same goal of getting financial independence. Chapter 7 cases last about 2-4 months, while Chapter 13 cases occur over a 3-5 year period.
Contact Our Los Angeles Bankruptcy Team Today
We understand how stressful and overwhelming your financial situation may be. Through compassionate and personalized services, we are uniquely equipped to help you find freedom from your debts.
If you would like to learn more about how bankruptcy can help you, contact us today through our website, or give us a call at (310) 846-8454 to schedule a consultation today!