Posts made in February, 2014

Bankruptcy or Debt Settlement: Legal Solutions to Unmanageable Debts

Posted by on Feb 10, 2014 in Bankruptcy | 0 comments

Being weighed down by debts is a stressful and worry-filled life to live. Major changes in one’s financial situation due to the economy, which greatly affects his/her financial circumstances, can only result to unpaid bills that continue to accrue interests. Despite that fact that no individual can lose his/her rights as a consumer, failure to pay bills (for at least six months) will render the amount owed as bad debt and the debtor, incurring negative credit.

Consulting with a highly-qualified bankruptcy lawyer when things go financially out of hand would be one advisable move. He or she will inform you of the different legal solutions that will help solve your financial woes, whether as an individual or a business owner. Your lawyer may advise you to file for debt settlement, which can render all of your debts or a part of these forgiven and erased by your creditor/s. Or you may be advised to file for bankruptcy, which may also erase some debts, allow you to liquidate your assets/properties to pay these off or which may give you enough time (three to five years) to pay your creditors.

Whatever you will be wisely advised to file for, here are some of the advantages or disadvantages of these options:

Debt Settlement: you will still have to pay your debts, but which has already been reduced to more than half (sometimes, debts are forgiven altogether). The advantages of debt settlement include:

  • No need to file for bankruptcy, which means less impact your credit report and no need to file and attend any time-consuming litigation processes which is part of the bankruptcy procedure
  • You can make a single, lump sum payment to your creditor/s, saving you from further worries over monthly payment dues (and interests)
  • Upon filing of debt settlement, a letter will be sent by your lawyer to your creditors, asking them to stop all forms of collection and harassment from debt collectors
  • You will never have to worry about lawsuits that may put a lien on any of your properties, put a levy on your savings account or have your wages garnished

The disadvantages associated with debt settlement include:

  • A decline in your credit score, but which is already a result of non-payment of debts for at least six months, maybe long before you file for the settlement
  • The need to pay taxes due to the amount forgiven by your creditor/s (if forgiven amount exceeds $600). This is called the cancellation-of-debt (COD) income.

Bankruptcy, on the other hand, is a legal declaration of the incapability to pay debts, personal or business loans. Filing for bankruptcy will, like debt settlement, also stop creditors from further attempting   payment collections or filing lawsuits to have control over your properties, have your salary garnished or levy your bank account. This also means end of calls and notices from law firms, which are intended to harass you until you decide to pay.

There are different chapters of the bankruptcy law, each designed according to a debtor’s financial situation. These include:

  • Chapter 7 – this law involves asset liquidation to enable payment of debts
  • Chapter 11 –  also known as business reorganization
  • Chapter 13 – involves debt repayment based on a three-year or five-year repayment proposal
  • Chapter 12 – which is specifically designed for families of farmers and fisherman (who own the whole or more than 50% of the farming/ fishing business) with a regular annual income
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