Is Bankruptcy Better Than Debt Settlement?
Jan. 10, 2024
As someone who's grappling with substantial debt, you might find yourself weighing the options of bankruptcy or debt settlement. Both paths promise relief from your financial burdens, but they're far from identical. It's crucial to grasp what each entails and how they differ. Here in western Oklahoma, my firm, Deborah Brooks & Associates, P.C., is equipped to clarify these complexities. I’m ready to guide you towards an informed decision about your financial future.
I understand the gravity of severe financial difficulties and the ripple effects they can cause in your life. With almost thirty years of experience, I've learned that every client's situation is unique and demands personalized attention and collaboration.
That's why at Deborah Brooks & Associates, P.C., I offer free case consultations so you don't have to navigate Chapter 7 or Chapter 13 bankruptcy, foreclosures, repossessions, or IRS levies alone. I’m here to lay out your options, plan your next steps, and work relentlessly towards the best possible outcome.
Brief Overview of Personal Bankruptcy Options
Bankruptcy is a legal process overseen by federal courts, designed to assist individuals or businesses in either eliminating their debts or repaying them under protection from the bankruptcy court. Personal bankruptcies primarily fall under two categories: Chapter 7 and Chapter 13.
Chapter 7 bankruptcy, often known as "regular bankruptcy," allows those who qualify to eliminate ("discharge") most of their unsecured debts. Debts that can be discharged include but are not limited to; credit cards, medical bills, most loans, repossession deficiencies, and even some taxes. In exchange, certain non-exempt assets can be sold by a bankruptcy trustee to repay creditors. While that sounds scary, laws called exemptions protect most assets from the bankruptcy trustee. Almost all states have exemption laws to protect homes, vehicles, and normal household goods and apparel. Oklahoma's exemption laws are so generous, that most people do not lose any assets in bankruptcies filed in Oklahoma.
Chapter 13 bankruptcy, also called "reorganization bankruptcy," allows people to enter into a payment plan under the protection of the bankruptcy court. A Chapter 13 Plan can include debts that cannot be eliminated in Chapter 7, such as loans secured by collateral you want to keep and non-dischargeable taxes. Non-exempt assets can also be retained, through the plan. Payment on otherwise dischargeable debts like credit cards is limited to what you can afford during the plan term, which is somewhere between 3-5 years.
The Reality of Debt Settlement
On the flip side, debt settlement is a process where you negotiate with your creditors to pay a lump sum that's less than the full amount you owe. It's often marketed as an alternative to bankruptcy. However, it's crucial to understand that, this process carries its own set of risks, many of which can be avoided in bankruptcy.
First, not all creditors are open to negotiation, and there's no promise of success. The process can stretch over years and usually results in significant damage to your credit score that could last longer than if you did a bankruptcy. Also, any forgiven debt can be considered taxable income, which may lead to a hefty tax bill.
Bankruptcy vs. Debt Settlement: Which Choice Is Right for You?
Choosing between bankruptcy and debt settlement can be a tough call, as both options have significant long-term implications. Bankruptcy provides immediate protection against aggressive creditors, putting a halt to garnishments, foreclosures, and repossessions. Bankruptcy also provides a fresh start, enabling those who file to begin rebuilding gradually over time.
On the other hand, debt settlement may sound tempting as it might reduce your debt. However, it's important to consider the risks and drawbacks. Debt settlement is a prolonged process that can potentially leave you in a worse financial situation than when you started. There is no guarantee that your creditors will be willing to negotiate with you, leaving you with limited control over the outcome. You will have no protection from your creditors while you are working through the process. Finally, fees charged by debt settlement companies are often hidden and can greatly exceed those charged by bankruptcy attorneys whose fees are regulated by the bankruptcy court.
Choosing between bankruptcy and debt settlement depends largely on the specifics of your financial situation. Here are some steps to help guide your decision:
Evaluate Your Financial Situation: Gather detailed information about your income, assets, debts, and monthly expenses. This will help you understand your capacity to repay debts and whether you have any non-exempt assets that could be liquidated in bankruptcy.
Research and Understand Both Options: Thoroughly understand the specifics, benefits, and risks of both bankruptcy and debt settlement. Consider the impact of each on your credit score, tax implications, cost, time duration, and the psychological impact of each decision.
Consult with a Bankruptcy Attorney: We free consultations. Even if you have no plans to file bankruptcy, the consultation is an invaluable opportunity to learn about your options. Seeking professional advice is crucial. Professionals can provide personalized advice based on your specific situation and guide you through the process if you decide to go forward with either option.
Consider Long-Term Implications: Both bankruptcy and debt settlement have long-term effects. Bankruptcy can reduce or eliminate your debt and provide a fresh start, allowing you to gradually rebuild your credit. Debt settlement might reduce your debt, but it might also leave you with a significant tax bill and could damage your credit score.
Make an Informed Decision: Weigh all the pros and cons of both options against your personal financial situation. Keep in mind your long-term financial goals and choose the option that aligns best with them.
Remember, dealing with overwhelming debt is stressful, but understanding your options and making informed decisions is your first step toward financial recovery.
Work With Trusted Legal Counsel
At Deborah Brooks & Associates, P.C., I believe in delivering personalized service tailored to your unique needs. I'll work directly with you to review your financial situation, explain your options, and formulate a strategy that best fits your circumstances. My goal is to help you carve a path towards a more secure financial future.
Whether bankruptcy is better than debt settlement depends on your specific financial situation and long-term goals. Thus, it's crucial to seek professional advice before making such a significant decision. I represent people and small businesses residing in western Oklahoma, including Oklahoma City, Lawton, and all of the counties west of Oklahoma City. If you find yourself facing financial difficulties, don't hesitate to reach out to me today for a free case consultation. Together, we can find the best path forward toward a financial start.