If you are struggling to pay off your debts, you may be torn between filing bankruptcy or settling debts. Before you decide, it’s best that you know the risks and the difference between bankruptcies and debt settlements in order to make an informed decision.
Declaring bankruptcy can effectively discharge most, but not necessarily all, of your debts. Alimony, child support, student loans, and tax debts cannot be discharged if you declare bankruptcy. In Chapter 7 bankruptcy, your nonexempt property is liquidated in order to pay off the amount owed. On the other hand, a debtor can keep their properties under Chapter 13 but will have to repay their lenders through a repayment plan. Consult a bankruptcy lawyer to know which type of bankruptcy is best for you.
Debt settlement involves negotiating with the creditors and collection agencies to reduce the amount you owe and eventually, to settle your debts. This can be done either through a debt settlement company or on your own.
Bankruptcy filings cost around $400 for filing fees and miscellaneous administrative fees. Additionally, you will have to pay for credit counseling and debt education courses as part of the bankruptcy process, aside from attorney fees which vary per state. If you have filed bankruptcy Chapter 13, you will also follow a repayment plan lasting three to five years.
The cost of settling your debts varies depending on how your negotiations turned out. Generally, a creditor may settle for around 40% to 60% of the total amount borrowed but is typically required to be paid in lump sum. Furthermore, settlement companies may charge you a contingency fee and set-up fees.
Typically, a debt settlement company will ask debtors to stop making payments until they have negotiated with the creditors. This increases how much you owe due to added fees and interest charges, but will benefit the company as they charge a percentage of the amount you save through settlement.
Unfortunately, since these companies are for-profit, most do not have your best interests in mind. The debt settlement industry is rampant with scam artists who fail to follow through on their promises, and some of the red flags you should watch out for include high upfront or ongoing fees, promises to fix your credit score, or claims to have guaranteed results.
After a bankruptcy filing, your assigned bankruptcy case trustee sells your assets and distributes the proceeds to holders of claims. However, the bankruptcy court allows filers to keep what is considered exempt property. Consult with a bankruptcy attorney to know which properties you can claim as exempt in your bankruptcy petition.
Benefits of Working with a Bankruptcy Attorney
If you’re still unsure which is the right choice for you, a skilled attorney can give you practical legal advice after fully analyzing your situation. Here are a few reasons why it’s best to hire an attorney.
- They will go over all of your options with you and help you figure out whether you should file for bankruptcy or settle your debts depending on your current situation.
- They can defend you should a creditor decide to sue in order to collect a debt, Likewise, if the Fair Debt Collection Practices Act is violated by debt collectors, attorneys can tell you what steps to take to address the situation.
If you are considering bankruptcy in Arizona or in Nevada, you need to consult with an experienced bankruptcy lawyer to explore your options. The bankruptcy lawyers of Want a Fresh Start, LLC can present you with all of your options and guide you to choosing what is best for you. Call us now for a free initial consultation.