When people begin to look for options regarding debt relief, bankruptcy tends to be a last resort. Many even think of bankruptcy as a last resort without considering all of the advantages it provides. One popular alternative to bankruptcy has always been debt settlement, and below you’ll find a guide as to why bankruptcy could be the better option.
What is Debt Settlement?
The process begins with approaching a debt settlement company to decide how much you can afford to pay each month. Once you enter a debt settlement agreement, you begin to make monthly payments to the debt settlement company, which they hold in an escrow account.
The idea is that once you have built up a large settlement amount in the escrow account, the debt settlement company will reach out to your creditor(s) to make a settlement offer. It may seem simple and straightforward, but as it turns out, it may have more complications than 6benefits.
The Problem With Debt Settlement
One of the biggest issues with debt settlement is there is no guarantee that your creditor(s) will accept the offer. If this occurs, it only means that you have been paying money to the debt settlement company without solving any of your debt problems.
There are also possible tax consequences that accompany debt settlement. If you can settle and your debt is reduced, the Internal Revenue Service (IRS) will consider the reduction as income and tax you on it, leaving you with a significant tax bill at the end of the year.
Bankruptcy is a tried and true method of not only debt reduction but debt elimination. The discharge you gain from bankruptcy is not taxable by the IRS, giving you true independence from your debt at the end of the process.
There are two main types of bankruptcy, Chapters 7 and 13. Both chapters offer different methods but still achieve the same goal of getting rid of debt. Chapter 7 cases last about 2-4 months, while Chapter 13 cases occur over a 3-5 year period.
Both Chapters can be tailored to fit your specific needs and objectives with the right legal representation, and we are ready and willing to help.
Contact our Encino Bankruptcy Team Today
We understand the sense of urgency you may be feeling to get rid of your debts. We use a compassionate and personalized approach to help you gain the financial freedom you have been looking for.