What are the Differences Between Debt Settlement & Bankruptcy
When it comes to making a decision as to Debt Settlement or Bankruptcy you should carefully consider the benefits and consequences of both options. Neither decision should be made lightly and they both have repercussions.
First, remember that Debt Settlement is *not* the same thing as Debt Consolidation. (To learn more about Debt Consolidation click here). Debt Settlement is the process of paying lump sums to your creditors in exchange for a reduction in your debt.
There are several key areas which should be evaluated:
| Do You Need… | Debt Consolidation | Debt Settlement | Chapter 7 Bankruptcy | Chapter 13 Bankruptcy |
|---|---|---|---|---|
| A Repayment Plan? |  | | | |
| To Stop Litigation? | | Can Delay | | |
| To Protect Assets? | | | | |
| Asset Protection at All Costs? | | | | |
| Legal Advice? | | | | |
| A Discharge of Debts Without Tax Consequences? | Usually | | | |
| A Quick Resolution? | | | | |
| To Stop a Garnishment? | | | | |
| Creditor Acceptance of your Payments? | | | | |
| To Qualify? | | | | |
| Money to Settle? | | | | |
Please recognize that the above chart is not something that can explain the nuances like speaking with an attorney can. For example, asset protection is not limited to non-bankruptcy options. There is a concept in bankruptcy called pre-bankruptcy planning and if done correctly you will not lose or can minimize the loss of assets.
Likewise if you have an asset that at all costs you cannot lose and it is not protected within a bankruptcy filing then you should consider an alternative such as debt settlement. Remember with Debt Settlement you will need access to money so that you can make a payment within a relatively short period of time.
One of the largest advantages of bankruptcy is the legal protection that it provides. There is an automatic stay upon filing. This stops garnishments, lawsuits, creditor phone calls, and essentially any creditor activity whatsoever. This does not strip creditors of their rights, but their rights are now defined by the bankruptcy code, rather than state contract law.
However, one of the largest downsides to bankruptcy filing is the loss of control of your assets. When a bankruptcy is filed a bankruptcy estate is created which is comprised of all of the your assets. This means if the debtor owns something, that is not exempt, the bankruptcy trustee could liquidate the asset. But, if you are concerned about this, make sure you speak with a bankruptcy attorney. Just because you may have a non-exempt asset doesn’t mean you would lose it in bankruptcy. Oftentimes you have the right to purchase it back or keep it in a Chapter 13.
At the end of the day deciding whether or not to file bankruptcy or go the debt settlement route will be based on the individual facts of each client. But what is most important is to explore ALL of your options and not get pushed into one or the other from a salesman.
Call an attorney and Cohen & Cohen, P.C., today to discuss your debt resolution options with a licensed attorney. We are here to help!
