If you’ve been living with the stress of excessive credit card debt and you’re now at the point where you know something needs to be done, you really have two options to choose from:
- File bankruptcy
- Attempt voluntary settlements with your creditors.
There are pros and cons with each option. Neither solution is perfect. Each person’s circumstance is unique. So your goal is to try and choose the option with the greatest upside and least amount of downside, then put your head down and go for it.
The best advice I can offer is to try and evaluate things as objectively as you can. Focus on the facts and do your best to remove emotion from your decision. Easier said than done, I know. But do your best.
Thinking about debt settlement? Get this guide first
To help you decide, I’ve compiled a list of pros and cons of bankruptcy vs. debt settlement.
- Once you file bankruptcy, creditors and collection agencies are promptly notified and they are then legally obligated to stop contacting you.
- If a creditor or collection agency has filed a lawsuit against you, a bankruptcy filing will usually stop that litigation from proceeding.
- Bankruptcy stops wages garnishments.
- If you qualify for Chapter 7 bankruptcy, most or all of your unsecured debts could be discharged. Poof. Gone.
- If you do not qualify for Chapter 7, you might still qualify for Chapter 13 bankruptcy where you would be put on a court-approved payment plan (typically 5 yrs) within your budget.
NOTE: In 2005, the bankruptcy laws were overhauled, making it harder for individuals to qualify for Chapter 7 (liquidation of debt). This means that more people only qualify for Chapter 13 (partial repayment of debts) where you will have a court-appointed trustee oversee your finances for several years.
- If you file for bankruptcy, you will have to appear in Federal Court at least once for a hearing.
- Depending on your situation, the Bankruptcy Court could require a court-appointed trustee to control and oversee your estate.
- Bankruptcy is a matter of public record for anyone to see, including future employers.
- Bankruptcy could be problematic if your current job requires a background check or security clearance.
- Bankruptcy can remain on your credit report for up to 10 years.
To learn more and get answers to frequently asked questions, here’s one of the best resources I’ve ever found on bankruptcy >> Acclaim Legal Services
- You can avoid filing bankruptcy. No need to go to court and appear before a bankruptcy judge.
- Your finances are not made public.
- You can receive substantial debt relief, if you qualify.
- Applies to unsecured debt only.
- You will have to deal with some collection calls and letters during the debt negotiation process.
- No specific outcome or result is guaranteed. (However, you can get a pretty good idea of your likelihood of success by consulting with a reputable debt settlement professional.)
- Although unlikely, you could get sued by one or more of your creditors.
- Your credit will be adversely affected. This is the trade-off for obtaining substantial debt relief without the need to file bankruptcy.
The Ultimate Deciding Factor?
It’s true that most (sane) people would prefer to avoid filing bankruptcy if at all possible. But why do you think that is?
I know the answer, and it might surprise you.
After hundreds of private, 1-on-1 consultations with prospective clients over the years I can tell you without a doubt that it boils down to just 2 words >> personal responsibility.
Whether it’s because of religious beliefs or personal moral convictions, the vast majority of people acknowledge that they owe the money and feel very badly about their inability to pay it back as originally intended.
Sure, there are “professional deadbeats” and scam artists that don’t pay their bills, but these people are the minority. The vast majority are good, honest, decent people that acknowledge their financial commitments and want to make good on their promises. Unfortunately unexpected life circumstances beyond their control can make it extremely difficult, if not mathematically impossible, to repay their debts.
So if you’re feeling bad about struggling to repay your debt, that’s completely normal and you’re not alone. Stuff happens. Just do your best. If you can’t pay back your entire debt, pay back what you can even it’s for less than full balance.
Hopefully I’ve helped you gain some additional clarity to help you with your decision.