What Is the Difference Between Debt Settlement and Bankruptcy?

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Declaring bankruptcy is likely a move you never expected to have to make. Yet you may find yourself in a dire financial situation that has you seriously considering it. Due to the hefty implications of a bankruptcy filing, you must equally weigh all your alternative options before finally pulling the trigger. That is, you must not ignore the potential debt settlement proceedings you may have at your disposal. Read on to discover the difference between debt settlement and bankruptcy and how a seasoned Rockland County bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq. can help determine which option best suits you.

What makes a debt settlement different than a bankruptcy filing?

In its simplest terms, a debt settlement may be considered a negotiating proceeding in which you and your creditor agree on a reduced payment on your outstanding debts. It is worth mentioning that this alternative option is only feasible if your creditor is willing to enter negotiations in the first place. That is, they have no legal obligation to entertain your negotiation proposals. Rather, in a worst-case scenario, they may turn your account over to a collection agency or possibly take legal action against you.

On the other hand, a bankruptcy filing may prompt a court-supervised legal process for handling your outstanding debts. Namely, Chapter 7 bankruptcy may eliminate your dischargeable debts while Chapter 13 bankruptcy may establish a plan to repay your debts over time. Either way, this process may leave your creditors with more restricted input. Further, entering bankruptcy may automatically bar creditors from pursuing collection activities or legal actions against you.

Which option is best for my current financial situation?

  • You may opt for debt settlement if:
    • You wish for your proceedings to be handled privately.
    • You wish for the effect on your credit score to be less damaging.
    • You have plans to buy a home, start a family, etc., and wish for a less damaging effect.
    • You believe a slight reduction in your total debt makes your ability to pay it off more manageable.
    • You believe you have the discipline to follow through on your debt settlement agreement without incurring new debts.
    • You believe your creditors are willing to negotiate and unlikely to commence collection activities or a lawsuit against you.
  • You may opt for bankruptcy if:
    • You believe you have already exhausted all other avenues of debt relief.
    • You believe your total debt significantly exceeds your ability to pay it off.
    • You believe your low-income level makes you more qualified for bankruptcy proceedings.
    • You believe your income is too unstable to follow through on a debt settlement agreement.
    • You wish for certain debts to be completely discharged from your immediate responsibility.
    • You believe you have little to no time before your financial situation becomes extremely urgent.

To allow the best decision to be made, it may be in your best interest to retain the services of a competent Rockland County bankruptcy attorney. Contact The Law Offices of Allen A. Kolber, Esq. today.