Are you looking for a way to get out of a large debt?
The average debt is $38,000 per American adult. It changes for every age group, but it doesn’t go lower than $20,000. When you run out of time to pay your debts, you have a few options.
In this guide, we’ll compare filing for bankruptcy vs debt relief. Read more to learn the best solution for your situation.
Contents
What Does It Mean to File For Bankruptcy?
Bankruptcy is the legal process to declare you or your business can’t pay outstanding debt. It starts when you file a petition in the federal bankruptcy court. Various types of bankruptcy filings in the US.
In the Bankruptcy Code, some chapters state and define these types. For example, Chapter 7 discusses the liquidation of assets. Chapter 13 bankruptcy arranges for debt repayment with lowered debt contracts or payment plans.
Pros and Cons of Bankruptcy
The primary benefit of bankruptcy is the short process. It only takes less than a year, often between six and eight months. It offers a fresh start for debtors who have exhausted all options of repaying their debts.
Also, the FTC won’t ask you to pay taxes on unpaid debts.
The primary drawback of filing for bankruptcy is damaging your credit score. It remains in your record for ten years. Depending on your debt, you might lose your property and belongings after declaring bankruptcy.
What Is Debt Relief?
Debt relief reorganizes your debt in other shapes or forms. Like bankruptcy, it has various types as well. They aim to accomplish the following:
- Reducing the outstanding principal amount
- Lowering the interest rate on loans
- Extending the term; and more
Debt relief is an alternative approach to avoid bankruptcy. You can talk to creditors to find or create a debt relief plan to benefit both parties.
Pros and Cons of Debt Relief
Debt settlement or debt relief allows you to pay only part of the total debt. It’s an attractive benefit, especially if you have no other property or asset left. Going to a debt relief company also offers free credit counseling.
It also saves you the trouble of dealing with the costs and time involved in bankruptcy.
However, not all creditors accept or consider debt relief. It’s also a form of revolving debt. Some debt settlement companies charge high fees or turn out to be scams.
Picking Between Bankruptcy and Debt Relief
The answer will depend on your current assets and resources. The best way to know the right option for you is to talk to an attorney. Look for a reputable law firm or practice to get the best advice.
Understand Bankruptcy vs Debt Relief Now
The burden of settling financial problems isn’t something to take on alone. Ask for a helping hand from experts with a better understanding of the system. It’s wiser than guessing for the best financial solution between bankruptcy vs debt relief.
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