Chapter 7 Bankruptcy vs. Debt Settlement
What Is The Best Way To Get Rid Of A $50,000 Credit Card Debt?
If you have a large credit card balance you can't pay, chapter 7 bankruptcy offers many advantages that debt settlement does not.
Chapter 7 discharge is less expensive, much faster, offers a more reliable outcome and allows rebuilding of credit sooner than debt settlement.
Below is a comparison of the results one can expect from treating a $50,000 credit card debt by filing Chapter 7 Bankruptcy vs. enrolling in a debt settlement program.
- Chapter 7: Costs much less than debt settlement
- Chapter 7: Much faster than debt settlement
- Chapter 7: Prevents any/all lawsuits against you
- Debt Settlement: Does not prevent lawsuits, it makes them more likely
- Chapter 7: One low fee, $0 to credit card debt
- Debt Settlement: You pay 50% of credit card debt and has higher fees and taxes
- Chapter 7: You pay no income tax on discharged debts
- Debt Settlement: You pay income tax on all settled debts
- Chapter 7: You can sue any creditor that harasses you
- Debt Settlement: You have no legal defense against collections or lawsuits
- Chapter 7: You are represented by an attorney bound to assert your legal rights under the bankruptcy code
- Debt Settlement: You are not legally represented - your agents are unregulated employees of sales organizations
- Chapter 7: Reliability bankruptcy court stores/records government records to immediately stop any dispute arising later
- Debt Settlement: Unreliable - debt settlement companies come and go and are not regulated entities. Records are frequently lost, misplaced, or unavailable. High turnover means they don't know (or care) who you are after you pay
Advantages of Chapter 7 Bankruptcy
Disadvantages of Debt Settlement
|Licensed Attorney Representation: You are legally represented by a licensed attorney. You are totally protected from collection and lawsuits by the U.S. bankruptcy code. Your attorney is bound to assert your legal rights and protections under the code. Any/all collection actions against you stop immediately. You have the right to sue any creditor which attempts to collect from you after you file.||No Attorney Representation. You are not legally represented by an attorney in debt settlement. Creditor lawsuits do arise during the debt settlement process. The debt settlement company tells you to stop paying creditors. Creditors have no reason to settle until you stop. When the credit card company sues you, the debt settlement company provides no legal defense. Bankruptcy is frequently your only remaining option - having wasted debt settlement payment.|
|Cost: Lower. Chapter 7 costs less than debt settlement (up to 85% less depending on the amount owed). Once your bankruptcy fee is paid, your case gets filed, and collections stop immediately. Your debts are discharged in 90 days. Debt settlement requires much larger fees and takes years to settle. Paying 50% of what you owe is the best result you get. In Chapter 7 bankruptcy you pay $0.||Cost: Higher. Debt settlement costs much more than chapter 7 bankruptcy. Debt settlement costs $3,500-$4,500 of advance fees to the debt settlement company, plus a minimum of 50% of your total indebtedness amount which you must pay over time to accumulate enough settlement money to even begin to settle debts. Then, after settlement, you must pay income tax of the settled amount.|
Example: Cost To Discharge $50,000 Credit Card Debt Through Chapter 7 Bankruptcy
Attorney Fee $1,500 + Filing Fee $338
Total Cost to Discharge $50,000:
You Cannot Be Sued
Example: Cost To Discharge $50,000 Credit Card Debt Through Debt Settlement Company
Advance Fees Paid to Debt Settlement Co.: $3,750
Settlement Funds Paid in Before Settlement: $25,000
Income Tax on Forgiven Debt (25% Tax Rate): $625
Total Cost to Settle $50,000:
You Can and You Will Be Sued
|Chapter 7 Legal Protections: Absolute 100% protection from creditors under the bankruptcy code 11 USC 362 (Automatic Stay) and 11 USC 727 (Discharge). Creditors cannot sue you, bill you, call you or continue any collection whatsoever for the rest of your life. If they do, you can sue them.||Debt Settlement Legal Protections: NONE. You are instructed by debt settlement company to stop paying creditors. You must pay the debt settlement company all fees first. Then. you must pay up to 50% of the total balance you owe to settle debts. Many creditors sue long before settlement ever happens. This forces you into bankruptcy, the debt settlement money is lost and your credit is badly damaged. Your wages can be garnished, property seized and bank account levied.|
|Takes Less Time: Chapter 7 discharge takes 90 days. You can start rebuilding credit in 90 days.||Takes up to 20x Longer: Can take 2-5 years. You can start rebuilding credit in 2-5 years.|
|No Tax Effect: Discharged Debts Are Non-Taxable. You pay no income tax on any debt discharged in bankruptcy.||Income Tax Effect: Settled debt is taxable income. Debts settled are “debts forgiven”. Debt forgiveness is a taxable income event. You owe income tax on all settled debts.|
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Affordable Chapter 7 bankruptcy payment options.
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