Bankruptcy vs Debt Settlement: What You Need To Know

bankruptcy vs debt settlement decision chapter 13 versus chapter 7

While one goal for your life may be to always stay financially independent, there are many factors that can throw that off. The global economy is going through a tailspin as we are trying to understand how to deal with the newest global market issues. You may be personally grappling with the question of pursuing either bankruptcy or debt settlement during this recent economic fallout. In case you cannot afford to pay your debts, the two mentioned alternatives are the most sensible for your financial situation.

This article will present an overview of the exercise, plus the benefits and drawbacks of bankruptcy and debt settlement. Besides, you will get insight to assist you in making well thought out finance choices. To start us off, below is a general description of every subject we will look at.

Chapter 7 Bankruptcy: Refers to a bankruptcy that cancels all your unsecured debts. As a general rule, bankruptcies do not discharge student loan debt.

Chapter 13 Bankruptcy: This is a bankruptcy that reshapes your current debt, especially if an individual makes way too much to file for Chapter 7 bankruptcy.

Debt Settlement: A person or agency working on your behalf to sort out your debt. The goal is to reduce what you owe if you can’t afford your debt.

Understanding The Chapter 7 Bankruptcy Process

The primary distinction between Chapter 13 bankruptcy and Chapter 7 bankruptcies is that most your unsecured debt is canceled in Chapter 7, irrespective of what you owe. Again, bankruptcies typically don’t discharge student loan debt.

To be eligible for Chapter 7, you must meet income stipulations on means testing. The Internal Revenue Service sets these standards. These income regulations are dependent on the income, hinged on your household size and your state of residence.

Each state tends to have different sets of requirements. For example, an Arizona bankruptcy means test may look different from a New Jersey bankruptcy means test.

For example, at the time of this writing, the New York bankruptcy means test has an income limit of $112,424 for a household size of 4. Make sure you are aware of the income requirements present in your state before you consider filing.

The latest Census Bureau Median Family Income By household size for April 1, 2024 can be found on the Justice Department’s website. Let’s say your income is above the average. Your next move will be to find out if the remaining amount is enough to repay part of your debt. You can work with the Chande bankruptcy company to determine if you qualify for bankruptcy or if there is a better financial solution for your situation.

Key Points To Remember About Chapter 7:

● Often states have specific bankruptcy exemptions. A New Jersey Chapter 7 Bankruptcy exemption could look different from a New York Chapter 7 bankruptcy. There are also federal bankruptcy exemptions to consider.

● People filing for bankruptcy with considerable consumer debts are the only ones required to take the means test.

How Does Chapter 13 Bankruptcy Work?

You may be considering how to file a Chapter 13 bankruptcy. A Chapter 13 may be an excellent way of getting rid of your outstanding debt. That said, it is a lengthy and highly-involved process. A Chapter 13 can take up to five years. You can get through Chapter 7 bankruptcy in as little as a year. Also, there are restrictions as to the amount of debt you can include.

When filing a Chapter 13 bankruptcy, it is the same with a structured settlement arrangement in a debt settlement in that you are required to deal with either some or all of your debt. The money that you pay is usually dependent on the variety of debts included in the bankruptcy and the amount you owe creditors.

Additionally, there’s a waterfall of payment priority with the initial payments addressed to your attorneys and the least priority to your unsecured creditors. What makes Chapter 13 so attractive is that you might be fortunate enough to retain some of your assets due to protection by the state due to bankruptcy exemptions.

You may have this question, “Is it better to file a Chapter 7 or Chapter 13?” You should have this question in mind before filing.

Crucial Points To Keep In Mind About Chapter 13

● There are various state specific attributes to consider, so it would be helpful to look up your specifics for your state such as Chapter 13 Bankruptcy Florida or Chapter 13 Bankruptcy Arizona or Chapter 13 Bankruptcy Texas. Your website search may be Chapter 13 “your state” to get the most relevant information for your state.

● Chapter 13 bankruptcy can drag on for three to five years, though most of them last for five years.

● There is motivation to remain in bankruptcy. In case you default in paying the trustee, the case can be thrown out, and you will once more owe your creditors, and unfortunately, all legal fees and trustee fees will not be refunded.

● Chapter 13 Bankruptcy will affect your credit score and credit report.

How Does Debt Settlement Work?

Debt settlement firms act as the link between the person owing the debt and the creditor. The debt settlement agency will accomplish the following for the client:

1. Generate a client-owned escrow bank account for the enrollee to integrate all the payments into a single payment for the creditors.

2. Liaise and settle your debt with the creditors, informing them that they will be the main point of contact henceforth to avoid future calls to the enrollee.

3. Work out an arrangement for the enrollee’s benefit with every creditor for the least probable rate. Ensure that you are on the same page with the enrollee on whether to go ahead with the settlement and payment strategy.

Repeat step 3 for all creditors. Manage payments to every creditor after completion and freedom from debt. You may have heard about debt management and wondered whether it’s the same as debt settlement. You should consider the key differences between debt settlement vs debt management. Both options have it’s own pros and cons.

The two biggest companies doing debt relief/debt settlement are Freedom Debt Relief and National Debt Relief. It can be helpful to look at reviews of these companies and other companies, such as National Debt Relief reddit for insights.

Keep In Mind About Debt Settlement

● In the process of choosing a debt settlement firm, it is crucial to honor the fees charged and evaluate them against other agencies, payment methods, plus any additional relevant costs in the program.

● It is also in your best interest to learn the end-to-end procedures of how the exercise works and the parties you will be relating to during the program.

Conclusion

You may have experiencing a financial hardship, forcing you to consider Chapter 7, Chapter 13 bankruptcy or debt settlement. Hopefully this article will provide the information to help you on your way for your decision to ditch debt.