Advice On Choosing Bankruptcy Or Debt Settlement
The inability to pay your bills due to unforeseen circumstances can be mind boggling. Fear not, options are available. One such option is debt settlement, also known as debt negotiation. Debt settlement is the process by which a debtor and creditor agree on a reduced balance settlement that will be considered payment in full.
Settling what you owe for a lesser amount can seem like the answer to prayer or a magic bullet to an overtaxed consumer. It certainly sounds like a better solution than filing bankruptcy. Be aware, the industry is largely unregulated and wrought with many perils for consumers.
Fraud is by far the biggest. There are many fly by night companies willing to take your money and disappear once they have it. Many more lack experience in the field. Either way, both will take your money and not deliver.
Before deciding which path to choose, speak with an experienced bankruptcy attorney. Their expertise can help you decide which option better suits your need. The criteria for each varies somewhat. Although the end goal is to rid you of unpaid bills, neither choice offers a one size fits all solution.
Comparing the two will provide a simplistic overview of the differences that set them apart. Filing a chapter 7 bankruptcy enables you to wipe out debt immediately. Upfront costs are usually cheaper than negotiating and the entire process is over in a matter of a few months rather than years. When you no longer owe creditors you are free to start fresh. There is also a greater chance of losing your home and other personal property.
In relation taking the alternative route can prove to be more time consuming and expensive. Settling can take up to four years, but will help to avoid bankruptcy and unfair collection practices. Late fees and over-the-limit fees associated with credit card debts are eliminated and you will make only a single monthly payment to the settlement company. The difference between what you owe and what you pay is considered taxable income by the IRS, so you may end up with an extra tax burden.
When choosing a company to represent you, know what to look for. Company reputation speaks volumes. You want a company with a proven track record and positive client testimonials. Check for accreditation like a BBB report or certification from TASC (The Association of Settlement Companies) or the IADPA (International Association of Professional Debt Arbitrators). Ask about costs and fees before proceeding.
Your credit score will sustain damage either way. Your best bet is to try and minimize how much damage occurs. The better your score the greater the damage will be.
The federal government does not regulate these types of companies, but the Federal Trade Commission has recently imparted a few rules. Upfront service fees cannot be charged until at least one account is settled and there is a written agreement between you and your creditor.
Illinois has enacted the Debt Settlement Consumer Protection Act of Illinois. It provides that upfront fees are capped at $50 and total fees will not exceed 15% of the total value saved. Currently, there are no other states trending this practice.
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