We noted in our October 5 blog post the strong view of one industry insider that bankruptcy is a preferable option over debt settlement for consumers dealing with stark financial challenges.
Here’s one reason why, notes financial adviser and columnist Liz Weston: bankruptcy typically takes much less time to go through, which can alleviate lingering concerns regarding lawsuits, continuing collection efforts and related challenges while the process is ongoing. Weston points out that, while a Chapter 7 bankruptcy can often erase a pile of worrisome debt for filers within six months, debt settlement negotiations “can take years.”
And here’s something critically important: unlike debt settlement, a bankruptcy filing stays those aforementioned collection efforts and litigation threats.
Moreover, recovering from a bad credit score is a far quicker process for a debtor opting for bankruptcy relief rather than for debt erasure through settlement.
And it cannot be discounted that material deception often inheres in the cost-related promises of settlement companies. Many of those entities demand an up-front fee that can run many thousands of dollars. Additionally (and Weston says that this surprises many debtors), debts that are offset through settlement negotiations are thereafter reported to the IRS as taxable income.
Weston spotlights the false “demonization” of bankruptcy often advanced by settlement companies claiming that a Chapter 7 filing can result in a significant loss of assets for a debtor.
In truth, a key attraction of Chapter 7 is the manner in which it enables filers to customarily keep most or all of their assets.
Another industry commentator in the Weston piece states that bankruptcy “shines above” other debt-relief options, and is “the cheapest and fastest and best way to rebuild your credit.”
An experienced bankruptcy attorney can provide further information.