Finance & Loans
DEBT SETTLEMENT VS BANKRUPTCY
May 27, 2011 by creative · Leave a Comment
Are you faced with going for debt settlement or filing for bankruptcy? These are some facts to consider before making your decision.
Debt settlement involves negotiating with creditors to reduce the debt, interest rate or agree upon a repayment plan. This requires you to have cash to make repayments either as a lump sum or as monthly payments. If you are successful you will pay considerably less than the amount you owe (up to 70% owed).
The downside of debt settlement is that the amount that is waived off will be considered as taxable income and could raise your tax bracket requiring you to pay more taxes. It will also have an adverse effect on your credit score.
In Chapter 7 bankruptcy proceedings you ask court to discharge debts you owe and a judge would appoint a trustee to sell your non exempt properties and use the proceeds to settle to creditors whereas in Chapter 13 the court appointed trustee will negotiate new terms with the creditors.
The disadvantage of filing for bankruptcy is that it will reflect negatively on your credit score for a very long time. It is also a public record which anyone can see.