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Which is Better: Debt Settlement or Bankruptcy?

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Which is Better: Debt Settlement or Bankruptcy?

A woman who needs help filing for chapter 7 bankruptcy in New Jersey"

Consumer debt is pervasive in the United States, putting financial strain on millions of Americans. With the current state of economic affairs, the amount of debt continues to grow for individuals, businesses, and in the economy at large. There are solutions available to overcome debt, but how do you select the correct option for you? You can work with an experienced attorney to determine how you can start overcoming your debt and achieve financial freedom. 

Two popular options for handling consumer debt are debt settlement programs and bankruptcy. Both of these options can be handled by Georgette Miller & Associates. Each debt settlement option has its own benefits for resolving your debt, but also comes with consequences to consider, such as the impact on your credit score, involvement with the court system, and cost or length of time to resolve your debts. Your attorney can evaluate each of these factors and help you arrive at a solution that will work for you.

If you find yourself with mounting debts and wondering how you can get a fresh financial start, you can get answers from a debt settlement lawyer. You should contact Georgette Miller & Associates to discuss your situation and whether debt settlement or bankruptcy is the best option for you. 

Why Do Creditors Accept Settlements?

You may wonder why a creditor would accept a settlement agreement when they could seek the entire sum from you. Primarily, creditors understand that they too can benefit from a settlement agreement. Creditors are interested in receiving settlements to resolve outstanding debts. If they do not receive any money from payments by the debtor or a settlement, the creditor has to expend additional efforts to collect the money due. This could be through communication via letter or phone call, which takes time and effort by the creditor. Additionally, the creditor could take legal action to collect the debt, including obtaining a judgment after a lawsuit and pursuing post-judgment activities such as garnishment on wages or liens on property. Not only can these debt collection solutions be costly for creditors, but these procedures drag out the collections process even further. Furthermore, if the debtor ends up filing for bankruptcy, the creditor has to follow the bankruptcy laws and cease collection efforts during the bankruptcy. Therefore, creditors are willing to work with their customers so they can recoup some of the owed funds rather than walking away with nothing from the account. 

Quick Resolutions: Lump Sum Debt Settlement

If you are looking to settle debts quickly and have the ability to offer a lump sum settlement, you may be able to achieve two of your debt settlement goals: a significant discount and a speedy resolution. A quick settlement can benefit both you and your creditors. Your creditors can get a nice percentage of your debt at once and cease spending efforts on collecting your debt. Your creditors can decide how much of a discount, if any, to accept, so there is potential to save quite a bit among your creditors and have multiple outstanding debts resolved if your attorney can work out a successful settlement on your behalf. 

Resolving Your Debt With Payment Plans

Sometimes resolving a debt is as simple as asking for a reasonable payment plan. If you have multiple accounts that need to be resolved, you can appease creditors by settling your account with a payment plan. Creditors are inclined to accept a payment plan over time as they can rely on your promise to pay a certain amount on a set schedule, such as weekly, bi-weekly, or monthly. This allows the creditor to anticipate a stream of collections revenue that will allow them to budget for their business needs. 

Depending on the payment plan that is feasible for you and reasonable to your creditors, you may be able to resolve your debts without being brought into any legal process or court. Avoiding a judgment on your credit report can help your credit health, and you can avoid garnishment. If your creditor has already initiated a collections lawsuit against you, they may require you to sign an agreement for a judgment, but you can also make your creditors agree to not enforce the judgment against you as long as you keep paying as agreed. Your attorney can help you understand the legal consequences of your agreement.

Even if your payment plan lasts for an extended time such as several months or even a year or two, this can save you time on repayment compared to certain bankruptcy scenarios. Working with your creditors to accept a debt settlement arrangement can also save you the time and effort of having to complete credit counseling, which you should discuss with your attorney before deciding between bankruptcy and settlement. 

Be forewarned, if you enter into a settlement agreement with a creditor and are unable to keep your end of the bargain, your creditor may take legal action against you. This is why it is important to be upfront and realistic with your attorney so they can properly negotiate on your behalf and help you set yourself up for success on the path to financial freedom. 

When Might Bankruptcy Be Better Than Debt Settlement?

Bankruptcy may be a better option than a debt settlement agreement if:

  • You do not have available funds for a lump sum settlement.
  • You qualify for Chapter 7 Bankruptcy and can resolve your debts through this process in a matter of months compared to a longer repayment plan.
  • It is in your best interest to have a complete discharge of your debt through bankruptcy without tax implications.
  • You are ready to resolve debt owed to multiple creditors at once rather than working through piecemeal debt settlements.

Before proceeding with a bankruptcy solution, you should discuss your situation with an attorney so you can make an informed decision.

Discuss Your Financial Goals with a Debt Relief Lawyer 

Contact Georgette Miller & Associates to discuss your financial goals and your debt relief solutions. You can reach us at 866-964-6529 or by reaching out online to schedule your free consultation.