What is the Difference Between Debt Settlement and Bankruptcy?

 Posted on May 07, 2021 in Bankruptcy

Being in debt is not uncommon. According to Bankrate, consumer debt across the United States has reached $14.2 trillion, with the average American being nearly $93,000 in total debt. There are many different types of debt, including credit card debt, student loans, car loans, or personal loans. When you are in debt over your head, you have a couple of options when you are seeking assistance. Both debt settlement and bankruptcy can help you get out of debt, but the method through which they do that could not be any more different.

Debt Settlement

Debt settlement is an alternative to bankruptcy that may be right for some people. Debt settlement occurs when you or a representative from a debt settlement company contact your creditor to negotiate a settlement amount that is typically much lower than the original amount you owed. In some cases, you may be able to negotiate the settlement so that you are only left responsible for 50 to 70 percent of what your total debt was. The upside to debt settlement is that it is not a legal process. You do not have to file anything with the court. Furthermore, debt settlement does not have the same long-term effect on your creditworthiness as bankruptcy. 

Bankruptcy

Filing for bankruptcy can be a much longer and complicated process than debt settlement. Bankruptcy is the process of declaring that you cannot pay your debt and you want the government’s help. There are two different types of consumer bankruptcies: Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy, all of your debts and liabilities are forgiven after the bankruptcy is successfully discharged. In a Chapter 13 bankruptcy, your debts are reorganized into a payment plan that is manageable for you, while the remaining debt is forgiven at the end of your repayment period. Bankruptcy has a significant impact on your credit score and the bankruptcy stays on your credit report for up to 10 years after the bankruptcy is discharged.

Discuss Your Case With Our Schertz, TX Bankruptcy Attorney

With all of the options available to you, there is bound to be confusion over what the best option for debt relief is. In many cases, a skilled San Antonio, TX bankruptcy lawyer can help you determine your goals, needs, and what the best course of action would be to get you out of debt. Contact the Law Offices of Chance M. McGhee today to see how we can help. Call us at 210-342-3400.

Sources:

https://www.bankrate.com/personal-finance/debt/average-american-debt/

https://www.thebalance.com/debt-settlement-vs-bankruptcy-5179985