In most cases, Yes, Bankruptcy is much better for you than debt settlement. Although you may think debt settlement is the right thing for you, and the best thing to do, it’s probably neither.
There are many reasons why most people should avoid debt settlement – here are some of the most significant:
Debt settlement companies are not regulated or licensed – there is no person, organization, or government entity that oversees these companies and makes sure they are legitimate, ethical, and legal. Many debt settlement companies are scams.
Consumers often report fraud and mistreatment when dealing with these companies. Some of the debt settlement companies that advertise on television and the internet are not even licensed to do business in Kansas.
Attorneys are licensed by the state, and must be registered with the state and in good standing to practice law. Attorneys are governed by, and must comply with, laws and rules of ethics, and they are highly regulated by state agencies.
Most debt settlement companies charge significantly more for their fees than the cost of a Bankruptcy. Unfortunately, not only will you have to pay their fees, but you will also need to repay most, if not all, of your debt, causing yourself financial hardship and added stress for several years.
Most debt settlement plans require 5 to 7 years of monthly payments before the debt is settled.
During this period creditors may still make negative reports to the credit bureaus, making it unlikely that you will be able to improve your credit score for several years. When a Bankruptcy is filed creditors are prohibited from reporting your negative credit, and your score can improve as soon as you receive a discharge.
In other words, Bankruptcy can begin to fix your credit immediately after discharge, whereas it will be years before your credit is repaired with debt settlement.
If you successfully complete a debt settlement program and you wipe out a portion of your debt, it is likely that you will be required to pay taxes on the portion of the debt you wiped out – most debt settlement companies hide this fact from you.
You will not be required to pay taxes on any debt you discharge in a Bankruptcy. Generally only credit card debt is handled by debt settlement companies.
This means that you will still have to deal with creditors on other types of debt, you may still have to go to court, and you will still pay debts for medical bills, payday loans, signature loans, personal loans, judgments, repossessions, foreclosures, past leases, past utilities, and other types of unsecured obligations.
Your wages and bank accounts can also be garnished for these types of debts while you’re in a debt settlement program. Bankruptcy will discharge all of these types of debts.
This means you will no longer owe these types of debts, you will no longer be required to appear in court regarding these debts, and your wages and bank accounts cannot be garnished because of these debts.
Credit card companies are not required to agree to debt settlement. They can choose not to participate, and many make this choice. This means that although you have agreed to some type of debt settlement payment plan, some of your credit card debts may not be included in that payment plan, and you will be required to make monthly payments to those companies in addition to your payment plan. All credit card debt must be included in a Bankruptcy. Credit card companies do not have an option to avoid Bankruptcy.