SIX REASONS TO CHOOSE BANKRUPTCY OVER A DEBT SETTLEMENT PROGRAM

For a person in financial trouble, examining his or her options can mean the difference between a fresh start and a false start.  In an effort to avoid filing for bankruptcy, many people will turn to one of the thousands of "debt settlement" companies out there. Before you decide to use a debt settlement program to resolve your debt problem, be sure to arm yourself with important information and make a wise decision.  Below are six reasons that the federal bankruptcy laws (for individuals, generally Chapter 7 or Chapter 13) may be a better choice than a debt settlement program:

First, the debt settlement process can take many months or even years, and your credit is harmed each month until the debt is settled.  On the other hand, negative reporting of debts discharged in bankruptcy ends on the date you filed your bankruptcy case.  Once a bankruptcy debtor receives his or her discharge through the bankruptcy process, discharged debts are reported as "discharged in bankruptcy" with a "zero balance" to the credit bureaus.

Second, debt settlement programs typically settle your debt for 20% to 80% of the overall balances.  In a Chapter 7 bankruptcy, creditors typically are paid nothing. In a Chapter 13 bankruptcy, it is possible to provide that your creditors receive less than 20% of the overall balances through the Chapter 13 payment plan.

Third, any settled debt will have tax consequences and you may end up actually owing the IRS because of the settled debt.  A debt discharged through bankruptcy has a special tax exemption and there is no tax liability.

Fourth, during the debt settlement process you can still be sued by your creditors, even while you or your representative attempts to settle your debt with the creditor.  During bankruptcy, the filing of a new lawsuit or the continuation of an existing lawsuit is prohibited without the express permission of the bankruptcy court. In fact, this protection, known as the bankruptcy Automatic Stay, goes into effect the minute your bankruptcy case is filed, and becomes permanent upon the discharge of your debts.

Fifth, many debt settlement companies are disreputable and lack a solid financial basis.  You may lose your money and get nothing in return.  The bankruptcy courts are filled with people who tried debt settlement companies only to end up still needing to file for bankruptcy after having paid thousands of dollars to the debt settlement company. The bankruptcy process is authorized by the United States Constitution and its laws are written by Congress.  Only licensed attorneys admitted to practice in the federal courts are able to represent bankruptcy debtors.

Finally, the debt settlement process can take more than a year.  The general rule is: the longer you don't pay, the sweeter the settlement.  Creditors are reluctant to accept less than full payment unless they believe that you may file bankruptcy.  The typical chapter 7 bankruptcy case takes approximately four (4) months from filing to discharge.

If you are considering a debt settlement program, you owe it to yourself to investigate your Chapter 7 and/or Chapter 13 bankruptcy options, and speak with an experienced bankruptcy attorney.  The federal bankruptcy laws are a powerful tool designed to swiftly and effectively eliminate your debt problem(s) and put you on the road to financial recovery.