Debt Consolidation vs. Bankruptcy – Craft Law Office
If you are drowning in debt, debt consolidation or debt settlement may sound like a great solution, however, most of the time clients end up worse than if they’d filed for bankruptcy from the beginning.
Clients ask questions about debt consolidation, debt settlement and bankruptcy often, so we’re going to take a couple minutes to breakdown some common misconceptions and show you the pros and cons of debt settlement versus bankruptcy.
With a debt settlement, you will normally pay a company to settle your debt with creditors for less than the amount you owe them. With debt consolidation, you are normally paying a company to manage your payments to your creditors – allowing you to make one payment versus making multiple payments. Both come with various issues.
Here are some of the issues associated with debt consolidation and debt settlements:
- No notices – These types of companies will often change your address. When they do this, you will not receive notices regarding your debts which can put you in the dark about the process and where your debts stand with your creditors.
- Late charges – When these companies are trying to settle your debt, they tell you to stop making payments on your credit cards. By doing this there will be late fees being applied to your accounts so you could actually end up paying more money with the additional expenses.
- Length of time – Both processes can take years and during this time your life and your credit are turned upside down.
- Credit score – If you stop paying your creditor the late payments are reported to the credit bureaus. People assume they are saving their credit by not filing for bankruptcy which is not true. Often times your credit is more damaged through debt settlement than bankruptcy.
- Added fees – Debt settlement and consolidation companies often charge more money than the actual payments, therefore you could be going further in debt.
- Lenders can refuse – Wanting to settle your debt doesn’t mean you will be able to, your creditors have to first agree and sometimes they will not. There are lenders who have a non-settlement policy.
- Tax consequences – In debt settlement, the forgiven amount results in taxable income. This means if you were entitled to a refund, it could be taken away due to added income.
Here are some of the benefits of filing bankruptcy:
- Notice Throughout – With Craft Law Offices, you will know and understand the entire process of bankruptcy. Start to finish with no surprises.
- No Late Charges – Even if you stop making your credit card payments, you will not have to pay any late fees since you are not repaying any debt in most cases.
- Length of time – Filing Chapter 7 bankruptcy takes about 3-4 months to complete which is very different than the years debt settlement can take.
- Credit score – Most people who file for bankruptcy may see an increase in their credit score versus a big decrease. Contrary to popular belief, it is easier to repair your credit after filing a bankruptcy than after debt settlement. You can rebound from bankruptcy fairly quickly.
- One flat fee – Bankruptcy fees are normally “flat fees” meaning there are no surprises in the cost. There is one fee which is quoted at the beginning and that is normally lower than debt settlement fees.
- Lenders cannot refuse – Even if they want to, they cannot.
- No tax consequences – Your debt is discharged tax free.
Do we think debt settlement is better than bankruptcy? Our answer is no, simply because it is almost always worse. As we said in the beginning it may sound great to settle your debt for less, however it rarely works out that way. More times than not, debt settlement companies charge a great deal of money and get no real results because some companies will not negotiate.
Too many people end up unhappy with debt settlement programs and end up filing for bankruptcy. We suggest you contact Craft Law offices and consider starting with bankruptcy and save yourself time and money.
How about debt consolidation, is that better than bankruptcy? Again, we say no. Even if you want to repay your debt, you can always do that with better terms by filing for bankruptcy. With a Chapter 13 bankruptcy, you may be able to lower interest rates and possibly principal payments. Again, don’t start the debt consolidation process without speaking with Leslie Craft about bankruptcy options.
Don’t lose thousands with debt settlement or debt consolidation only to file bankruptcy. If you’re struggling financially and are considering debt settlement or consolidation, you owe it to yourself to call Craft Law Office today at 252-752-0297.