Debt settlement and filing for bankruptcy both offer people the opportunity to gain control of their finances. Deciding whether debt consolidation or bankruptcy will best serve your needs involves weighing a number of factors. An experienced Morris County bankruptcy attorney can review your financial situation to determine which option will offer you a clean slate while best protecting your assets.
What Is Debt Settlement?
Debt settlement involves negotiating with creditors to reduce interest rates, lower payments and settle debts for less than what you owe. If you are struggling with too much debt, this process can help you reduce the overall amount owed, enabling you to pay back creditors on terms you can afford. Unlike bankruptcy, debt settlement does not involve going through the court system, nor is it a matter of public record. It also may have less of an impact on your credit rating.
You might want to consider debt consolidation if you have:
- Credit card balances with high interest rates
- A steady job with good income
- The ability to borrow at lower rates
- Collateral such as a car or home
Debt settlement is not the right choice for everyone. The process sometimes takes longer than bankruptcy, and settled debts can potentially result in tax consequences. Moreover, whereas bankruptcy offers automatic stay protection that stops foreclosure, repossession and lawsuits, debt settlement does not. Creditors can continue with such actions until the debt is settled.
When Might Bankruptcy Be a Better Option?
Bankruptcy is a legal process of reorganizing or discharging debts. When a debt is discharged, you have no further liability for it. In certain situations, bankruptcy may prove a better option than debt settlement. Debt consolidation is probably not the way to go if:
- You are facing home foreclosure or repossession of your vehicle
- You recently lost your job or other source of income
- You cannot afford to pay back any of your debts
- You owe mostly non-credit card debts
In Chapter 7 bankruptcy, the trustee sells non-exempt assets to pay back creditors, and most debts are discharged (although, most people who file are able to keep their personal property).Dischargeable debts include credit cards, unsecured loans, medical bills, certain income taxes and deficiency balances on surrendered collateral. The bankruptcy court usually grants the Chapter 7 discharge within about three to five months. A Morris County Chapter 7 bankruptcy attorney can assist you with every step of the Chapter 7 process.
In Chapter 13 bankruptcy, you enter into a repayment plan to pay off secured and priority debts, such as car loans and mortgage arrears, plus a percentage of unsecured debts. At the end of the repayment plan, which typically lasts three to five years, the remaining balances are discharged. Chapter 13 offers troubled homeowners the opportunity to catch up past due mortgage payments and save their homes from foreclosure. To save your home in Morris County, contact a Morris County Chapter 13 bankruptcy lawyer today.