What Is the Difference Between Bankruptcy and Debt Settlement?
Filing for bankruptcy or choosing debt settlement are both means to the same end – eliminating the burden of overwhelming debt. However, just because they do the same thing, doesn’t mean that either option is right for everyone. Let’s start by defining Bankruptcy and Debt Settlement and detailing what each means.
Filing for bankruptcy is a legal process by which an individual defers to a bankruptcy court in and effort to discharge their overwhelming debt.
Through debt settlement, an individual approaches their lender, outside of court, in hopes of negotiating a lesser payment than what is owed. The lender generally only agrees to these terms because they fear the individual may consider bankruptcy in which case the lender would likely see no portion of the owe debt.
Both options do give those in debt a path towards recovering financially, but circumstances usually only allow them to consider one or the other. For example, if an individual is just getting by on their regular bills, but is struggling to even make a monthly payment on their massive credit card debt, debt settlement may be a worthwhile option. The individual may be able to work out a deal with the lender to free themselves of the credit card debt without building up more debt through other missed bills. On the other hand, if an individual has racked up medical bills due to an unexpected illness, lost their job or ability to make an income, and subsequently been unable to pay their mortgage or other monthly bills, that person may see bankruptcy as a more realistic option.
One of the biggest differences between going forward with a bankruptcy filing or negotiating a debt settlement is the repercussions after the fact. Filing bankruptcy can have a dramatic effect on one’s credit which will stay with them for seven to ten years until the filing is removed. In debt settlement’s case, the lender generally agrees to not report the settlement to credit-rating bureaus, and therefore there are no lasting impacts. That being said, choosing to discuss debt settlement with a lender should not be taken lightly. After learning of your inability to pay, the lender may instead choose to take a legal action possibly resulting in garnished wages or other means of collecting.
If you’re experiencing overwhelming debt, or worried about your ability to pay in the future, contact a bankruptcy or debt settlement attorney as early in the process as possible. Our experienced bankruptcy and debt settlement attorneys will discuss your particular situation at length and help guide you towards the right option for you. To contact our office call (702) 998-1188, email firstname.lastname@example.org, or schedule a consultation online.