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Is Debt Settlement A Viable Alternative To Bankruptcy?

couple looking at debt options for their finances

If you're facing financial struggles, you have many options. Of these options, debt settlement might be the best alternative to filing for bankruptcy. Financial issues can cause a variety of challenges and stresses. To better understand your choices, a debt lawyer in California can review your situation and provide the best legal guidance to work toward a financial reset.

What Is Debt Settlement?

Debt settlement, also referred to as debt negotiation, involves tackling your debt by only paying a portion of what you owe. The portion you pay is typically less than the total you owe for the debt.

Individuals often use debt settlement as an alternative to filing for bankruptcy. It allows lenders to receive some of the money rather than no money at all and allows borrowers to resolve their debt quickly and efficiently.

Types Of Debts Eligible For Debt Settlement

Not every type of debt qualifies for debt settlement. Many unsecured debts are eligible for debt settlement if the creditor agrees to a settlement. Unsecured debts are debts where the creditor does not have any collateral for the debt. Examples of unsecured debt include:

  • Credit cards
  • Store cards
  • Personal loans

Types of debt not eligible for debt settlement include secured debts, like mortgages or car loans, and federal student loans (private student loans do qualify for debt settlement). Before considering whether debt settlement is the right approach for you, review your debts and decide which debts are eligible for settlement.

Advantages And Disadvantages Of Debt Settlement

Debt settlement can offer debtors many advantages and a simple way to get out of debt. However, it doesn't come without some risks, which are worth considering. Before entering into an agreement with a debt settlement company, understand the pros and cons of the arrangement.

The most significant advantage to debt settlement is that you only need to pay part of what you owe to free yourself from the debt. Settlement can save plenty of time, money, and hassle. Additionally, the debt settlement approach can help avoid bankruptcy or having your debt sent to court.

Debt settlement does have some downsides. The most significant issue with debt settlement is that creditors are under no obligation to negotiate and offer a settlement. Therefore, this may not be a viable route to take. In addition, debt settlement can negatively impact your credit score and have tax implications.

Generally, every approach to resolving debts has advantages and disadvantages. For proper guidance, discuss your situation with a California debt attorney.

Debt Settlement Vs. Bankruptcy

When facing insurmountable debts, you may consider both debt settlement and bankruptcy. Both offer different approaches and resolutions. Debt settlement doesn't require filing in court as bankruptcy does. You can resolve your debts by paying less than what you owe. It is generally an entirely different approach than the more formal bankruptcy.

Bankruptcy, on the other hand, does require a court filing. While bankruptcy can provide a viable path out of debt, it can also have a lasting impact on your credit, staying on your credit report for 7-10 years – much longer than debt settlement.

When filing for bankruptcy, you'll usually choose between a Chapter 7 or Chapter 13 bankruptcy, depending on your situation and needs. Chapter 7 can clear your unsecured debt in a few short months. Chapter 13 helps create a payment plan to pay off your debts within three to five years.

However, bankruptcies are often complicated, with many details to consider. It is also essential to note that bankruptcy is not always an available option. Many debts are not resolved through bankruptcy, and if you've filed too recently, a certain amount of time must pass before filing again.

From a creditor's perspective, debt settlement is usually preferred over bankruptcy. This is because, even if they only receive a portion of what you owe them through debt settlement, they still get some payment. When you file for bankruptcy, there is a chance the creditor will not get any payment at all.

Deciding whether debt settlement or bankruptcy is suitable for you depends on various details, including the type of debt and your financial situation.

When facing the choice, it is always best to thoroughly discuss your case with a debt attorney in California.

When To Consider Debt Settlement

Sometimes, it is feasible to consider debt settlement as the better option to get out of debt. These situations often include:

  • You're willing to engage in negotiations to settle your debts with creditors or get help to do so
  • Your creditors agree to a settlement
  • Your financial situation allows you to pay your settlement amounts while still having enough income to support yourself

Alternatively, if you are unable to make any payments at all or your financial situation is particularly severe, you may need to consider other options. If you're unsure whether debt settlement may be right for you, do not hesitate to discuss your situation with a California debt attorney as soon as possible.

Can You File Bankruptcy After A Debt Settlement?

One of the most common concerns debtors face is whether they can file for bankruptcy after attempting to settle their debts. The answer is yes – even if you try to settle your debts and are unsuccessful, you can resort to bankruptcy.

For example, filing a Chapter 7 bankruptcy can free you of your unsecured debts. Even if you made a settlement agreement with your debtor, Chapter 7 could still erase this debt.

Individuals usually view bankruptcy as a last resort, choosing other options before committing to filing for bankruptcy. Handling your debts is often not a linear path and can involve many roads to resolution.

Is Debt Settlement Better Than Bankruptcy?

Debt resolution is usually not one-size-fits-all. It is unfair to say one route is “better” than the other, as resolving debts is a personal journey. Still, if debt settlement is available to you, its advantages can provide a clear way out of debt. Before committing to one method of debt resolution, consult with a debt attorney to better understand all your options and make the best possible decision for you. Understand that a non- attorney debt settlement company cannot discuss with you all of your options.

A California Debt Attorney Can Help You

If you've thought about debt settlement, you might have considered employing the help of a debt settlement company. A lawyer is better equipped to help with debt settlement, though, as they have more skills and resources to help get you the best possible outcome.

The debt lawyers at Fitzgerald & Campbell, APLC have been helping clients tackle their financial problems in Santa Ana, California, for over 30 years. We have successfully saved our clients millions of dollars, and we're always ready to help put more clients on the path to financial freedom. Our team fully understands financial stress, so we provide clients with the necessary care and compassion at a challenging time.

For a free consultation, call us at (844) 431-3851 or contact us online.

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