Debt Settlement vs. Bankruptcy: Which is Right for Me?

If you are among the thousands of employees laid off or furloughed, you may be looking for a solution to your overwhelming debt.

Millions of Americans struggle with paying their debts. Between February and April, the California unemployment rate jumped from 3.9% to 16.4%. Although it dropped to 13.3% in August, the expectations for the rest of 2020 are less than stellar. If you have a mountain of debt, you may wonder if the ads for debt settlement are truthful about its benefits, or you may be considering whether it’s time to bite the bullet and declare bankruptcy.

Although it dropped to 13.3% in August, the expectations for the rest of 2020 are less than stellar. If you have a mountain of debt, you may wonder if the ads for debt settlement are truthful about its benefits, or you may be considering whether it’s time to bite the bullet and declare bankruptcy.

Before making any decisions, give me a call. At the Law Offices of Terrence Fantauzzi, I focus on debt relief and have helped my clients deal with their debt burden and move forward with the rest of their lives for more than 10 years. I can help you determine whether a debt settlement plan is more beneficial than Chapter 13 or Chapter 7.

Debt Settlement vs. Bankruptcy

Although these are both solutions meant to cure overwhelming debt and restore your financial well-being, they are very different and come with advantages and disadvantages.

In the debt settlement process, there is no need for a court filing. A deal is negotiated with creditors to pay less than the amount due, often in one lump sum. Creditors often accept less than you owe, so that they can at least collect part of the bill you owe, which is not guaranteed if you declare bankruptcy.

The U.S. Bankruptcy Code has two options for individuals, Chapter 13 and Chapter 7. When filing Chapter 13, you work out a 3 to 5-year payment plan with creditors, and when completed, most remaining debt is discharged (wiped out). In Chapter 7, the nonexempt property is liquidated, with the proceeds going to creditors. It clears your debt in about six months. Each type of bankruptcy has different exempt property limitations.

Although debt settlement can take time, if you have representation on your side that understands how to negotiate properly, it can clear your debt and do less damage to your credit than bankruptcy. Bankruptcy can free you from debt collection calls and help you get a fresh start, but the hit to your credit lasts years. This doesn’t mean it isn’t the right option, however.

Which is Right for You?

Everyone’s circumstances are unique. If your monthly required payments, excluding rent or mortgage, are more than 20% of your income, you likely have a debt problem. A debt settlement plan may be your best option if:

  • Creditors are willing to work with you to set up a plan
  • You can make a lump sum payment to creditors in exchange of reducing the debt burden
  • You have a stable income that allows you to negotiate a plan you can afford
  • Your monthly wages will enable you to stick to the plan and still pay essential bills and save for emergencies

Bankruptcy may be the better option when:

  • Your lender is threatening foreclosure – Chapter 13 can help you get caught up on payments
  • Making a lump sum payment requires you to use funds from retirement accounts, such as an IRA or 401(k) – These accounts are protected in bankruptcy proceedings
  • You are unemployed and cannot make the required debt settlement payments
  • Any avenue that enables you to get out of debt will take more than five years
  • All other debt-relief options have been exhausted

Contact an Attorney Today

The requirements and guidelines for debt settlement and bankruptcy can be complex. As an experienced attorney, I can ensure you understand which options are most beneficial for you. Contact me today to schedule a free consultation. We can chat via phone or video conference if you prefer not to come to one of our local offices.  If you ready to climb out of debt, let’s talk about your options.

At the Law Offices of Terrence Fantauzzi, we help clients throughout California with debt relief.

Call Us Today