The two primary types of bankruptcy which individuals file for are Chapter 7 and Chapter 13. Each one has its own advantages and disadvantages for the filing party. One of the big issues today is that there is too much inaccurate information available to consumers that makes it difficult to understand the process in which one is most beneficial.
Before filing bankruptcy it’s important to understand the difference between debts discharged in bankruptcy and debts settled.
Debt Settlement vs Bankruptcy: Main Differences
While both debt settlement and bankruptcy are forms of debt relief, there are quite a few differences between the two.
Some of the key differences between debt settlement and bankruptcy include:
- Debt settlement does not require a court filing while bankruptcy does
- Debt settlement is a private negotiation between creditors and a debt settlement company
- Bankruptcy is a legal process, so the moment you file, creditors must stop collecting money. Debt settlement does not provide this legal protection.
Debts are also handled differently through both options, so before making a decision, it is important to fully understand each option.
Debts Discharged Through Bankruptcy
When you file for bankruptcy, there are certain types of debts that are discharged, which means that the courts absolve the filer of the responsibility. Generally this is done through filing Chapter 7 bankruptcy. It also prevents creditors from making any future attempts to collect this debt.
Debts that are dischargeable include:
- Credit card debts
- Medical bills
- Collection accounts
- Personal loans
- Utility bills
- Business debts
- Civil judgments
- Attorney fees
- Money owed under lease agreements
Not every type of debt is dischargeable. In rare cases, individuals may also be able to discharge student loan debt. However, this is not that common. Individuals who are able to win this type of case will be absolved of all of these types of dischargeable debts up to the date of the hearing.
When filing this type of bankruptcy, individuals can expect to experience a massive hit to their credit score and the filing to be reflected on their credit report for up to 10 years.
How Debt Settlement Works
Debt settlement is the process of consolidating debts and pursuing a repayment plan. Most creditors will allow individuals to repay debts over a 3 to 4 year period.
However, long-term debt settlement is not typically in the favor of the filer. During bankruptcy court, it is possible to pay a one-time lump sum to completely pay off a settled account that results in less interests and filing fees in the long run. This sum might also be less than the original debt was for.
Debt settlement on the other hand, can have much higher fees, leaving you with a bigger debt than what you started with. Creditors are also not obligated to negotiate with you and may even continue to hound you for payments.
Review Your Options with an Attorney
Filing bankruptcy can be complicated. The needs of each individual are unique and therefore may require assistance from a qualified legal professional who specializes in bankruptcy filings. Contact the experienced attorney of SM Law Group today to get start your bankruptcy filings.