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Debt Negotiation vs. Bankruptcy

When people find themselves in financial difficulty with no foreseeable way of getting out on their own, they tend to look for alternative solutions to find freedom from their debts. Most people avoid bankruptcy at all costs. They believe it will make their situation worse instead of better, and choose to pursue debt negotiation instead. Below you will find information on what you can expect from each process, and how they can suit your debt resolution needs.

Debt Negotiation

There are times when bankruptcy may not be the best choice for getting rid of debt. This can be achieved by debt consolidation, debt settlement, and debt negotiation. No matter which avenue you choose to pursue, these options involve negotiating with creditors to settle on a debt amount that is less than you originally owed.

There are only two sets of circumstances in which debt negotiation would be more effective than bankruptcy:

  • You may be able to pay off some of the debt, but you will have late fees and increased interest in the following months.
  • You were unable to qualify for bankruptcy, or have too little debt for bankruptcy to be effective.

The experienced legal professionals at SM Law Group, APC can you negotiate on your debt. We can:

  • Inform you of the risks of debt settlement
  • Contact your creditors for you
  • Establishing trust accounts for you
  • Negotiate with creditors on your behalf

Creditors and lenders are certainly not on your side when it comes to resolving your debts, but we are. If you need experienced legal guidance when negotiating with creditors, don’t hesitate to contact us today through our website or give us a call at (818) 805-1758 to schedule a consultation.

Though this may seem like a more desirable alternative to bankruptcy, there are possible downsides to the negotiation process. The most prevalent issue is that your creditors do not have to negotiate with you. With no guarantee that creditors will work with you, you may end up wasting time and resources on the settlement process.

There are also possible tax consequences related to debt settlement. If the IRS notices your debt was reduced by a settlement, they may consider the reduction as income and tax you based on that classification.

Bankruptcy

While most people look for alternatives, some people have used bankruptcy as an alternative to a stressful financial situation. There are two main types of bankruptcy available to consumers that can help get rid of debt: Chapter 7 and Chapter 13.

Chapter 7 bankruptcies offer a discharge to several types of debt through the liquidation of non-exempt property. The process can take anywhere from 2-4 months to complete, and the debt discharged by its completion is eliminated permanently.

Chapter 13 bankruptcies utilize a payment plan established by the court, taking 3-5 years, to reorganize your debts. These payments often end up being smaller than the filer’s original payments, with the possibility of receiving a partial discharge, all without forfeiting any property.

If you would like to learn more about these two chapters, we provide a more in-depth look into their capabilities here.

The main advantage of bankruptcy is that it has the ability to discharge all available debts permanently whereas in debt negotiation, you may only be able to partially reduce your debts. You also do not have to rely on creditors to make progress. In fact, what is known as “automatic stay” is put in place as soon as the bankruptcy papers are filed, legally preventing your creditors from taking any collection acts against you.

Other major benefits to bankruptcy include:

  • Debt elimination
  • Protection from foreclosures and repossessions
  • Avoiding wage garnishment
  • An overall fresh financial start.

If you are looking for ways to solve your financial problems, we are prepared to help find a creative solution to find financial independence. Wondering how to get started? Contact us today through our website or give us a call at (818) 805-1758 to schedule a consultation!