Should I File for Bankruptcy or Debt Relief?

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Many Americans are struggling to pay their monthly bills as the coronavirus pandemic continues. When you cannot afford to pay your bills each month, it can become easy to be overwhelmed by debt. For many, the more they try to catch up on paying their bills, the further behind and deeper in debt they become. Family members or friends may suggest that solution as a way to solve some of your financial problems. 

You may be considering filing for bankruptcy to resolve your debts and enjoy a fresh start. Are you one of the many Americans asking themselves if they should file for bankruptcy or debt relief? The first step to answering this question is understanding the difference between filing for bankruptcy and debt relief or consolidation.

Understanding Debt Consolidation

Debt consolidation is a broad term, and there are various ways you can engage in the process. Each type of debt consolidation comes with pros and cons that you should consider when making your decision. One of the best ways to make this kind of decision is to speak with an experienced bankruptcy lawyer who can advise you of all the available tools at your disposal. An experienced bankruptcy lawyer can break down all the different processes for you and help you understand them. 

Debt Consolidation Through a Settlement Loan

One option for debt relief is to obtain a settlement loan. You will need to get a loan or equity line to find the debt settlement offers. You can offer your creditors a percentage of the amount you owe them to settle the debt using the credit line. Some creditors may accept your offer, make a counter-offer, or decline to negotiate a debt settlement with you outright. It is essential that you do not offer more in the amount of repayment than you can afford to pay for each of your creditors.

Should your creditor agree to a settlement, you will need to pay them the lump sum that you offered within a short time. The creditor will then apply your payment to the debt and cancel the remaining balance on your account. If you decide to use a settlement loan to obtain debt relief, we recommend working with an experienced lawyer who can help you negotiate an effective deal. Your lawyer will also need to draft an agreement that is legally valid between you and your creditors.

Keep in mind that creditors are not required to work with you to settle your debts for less than the amount you owe. Several creditors could continue to pursue collections from you for the full amount. You will also need to report the amount that the creditor writes off or discharges to the IRS. The creditor will give you a 1099 form so you can report the number of deaths they took off your account as income. You will need to pay tax on that income. The write-off amount will also be reported to credit bureaus. You may have to pay more to settle your debts through a settlement loan than when filing for bankruptcy.

Consolidate Debt with a Debt Consolidation Company

Another way to seek debt relief is to use a debt consolidation company. Using this option can be tempting, especially because debt consolidation companies often published unethical advertisements that entice clients who cannot pay their bills. A debt consolidation company can help you consolidate your existing debt into one lower monthly payment. Unfortunately, the interest rate can be too high on that monthly payment. 

Debt consolidation companies are also well known for making potential clients promises they cannot keep. For example, a representative may tell a potential customer that the company will convince his or her creditors to negotiate settlements and lower interest rates. However, they cannot make these types of guarantees because creditors always have the option of pursuing collections and not engaging in debt consolidation.

Debt consolidation companies also charge a monthly fee for their services that can be quite high. The monthly fee will be deducted from your monthly payment. Even if a creditor agrees to the terms proposed by the debt consolidation company, the creditor can continue to report your past payments to credit reporting agencies. Even when a creditor appears to be working with a debt consolidation company, the creditor can take legal action against you at the same time. In short, debt consolidation companies often abused customers without protecting them from creditors. We recommend discussing your case with an experienced lawyer before hiring a debt consolidation company.

Choosing Bankruptcy Instead of Debt Relief or Consolidation

Many downsides come with debt consolidation or debt relief, as mentioned above. In many cases, filing for bankruptcy is a better option for consumers who cannot pay their bills. Even though bankruptcy has a stigma attached to it, bankruptcy can help people turn over a new leaf. If you are considering whether you should engage in debt relief or bankruptcy, it is wise to view bankruptcy as a legal form of debt relief that could result in a fresh start.

Depending on the facts of your case, filing for chapter 13 bankruptcy to consolidate your debt may give you more benefits than engaging in a settlement agreement, working on a settlement loan, or working with a debt consolidation company. In bankruptcy, creditors must participate in the process. 

They do not have a choice to opt-out of your bankruptcy without seeking the court’s approval. Additionally, you will not need to pay interest on your unsecured debts when you file for chapter 13 bankruptcy. Creditors cannot take legal action against you to collect a debt, including home foreclosure and repossession during the bankruptcy process. For all of these reasons, it is worth considering bankruptcy as a way to relieve debt.

Contact a Bankruptcy Lawyer Today

If you are considering seeking debt relief or filing for bankruptcy, you owe it to yourself to speak to an experienced bankruptcy attorney. The process of debt relief can be overwhelming, and the lawyers at Law Offices of Barton P. Levine are here to help. Contact us today to schedule your initial consultation.

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