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The Advantages of Bankruptcy over Debt Settlement

Debt settlement, or debt consolidation, can be achieved through a loan that covers the debt. In most cases, you can work with a credit company that will negotiate your debts down and lumps them all together so that you can make one payment moving forward. The interest rates are usually considerably lower, and your existing debt has been negotiated down, creating a new amount that is more realistic for you to satisfy.

Most debt settlement or debt consolidation companies, such as Freedom Financial, and others, seem to forget to mention the negative outcomes attached to their programs: exorbitant fees, the risk you’ll be sued, and the fact that you will owe IRS money for every dollar the debt consolidation company “saves” you in your debt.

What’s Involved in Filing For Bankruptcy?

I have counseled over 15,000 people who are struggling with their debt. Often, bankruptcy is a good choice – but not once – NEVER – have I found a situation where debt consolidation makes more sense than bankruptcy.

Bankruptcy is a legal process that provides you with relief from harassing calls, letters, and even from lawsuits and wage garnishment. Bankruptcy provides a legal avenue in which you can have some or all of your debt discharged, or forgiven, providing you an option to regain financial stability, increase your credit score, buy vehicles, or even qualify for a mortgage and buy a house.

This process also gives you powerful protection from further contact or demands from your creditors, and bankruptcy even protects you from lawsuits. Creditors are no longer allowed to pursue, discuss, sue you, or request debt owed, giving you a clean slate.

What Bankruptcy Options Do I Have?

There are several options for bankruptcy, but these are the main two options for individuals like you.

Chapter 7 is what most people think of when they consider bankruptcy. Most chapter 7 bankruptcies are over in less than four months, and in over 99% of chapter 7 bankruptcies, you will keep everything you own.

Chapter 13 bankruptcy is more of a repayment plan. Debtors who qualify typically set up payments over a 3 to 5-year plan to partially or fully satisfy debts owed. Assets or property owned is kept in the debtor’s name.

Benefits of Filing for Bankruptcy

First (and maybe most important) is having a clean slate after filing for bankruptcy. If your debts are discharged or forgiven, once the process is completed, you will have more disposable income to pay your debts moving forward. In most cases, you will have zero debt left and can begin to rebuild your credit and become more financially stable.

Rebuilding Your Credit

When filing for Chapter 7 or Chapter 13, the courts will issue an automatic stay on the debts listed in the bankruptcy. This can help individuals avoid foreclosure on their homes, repossession of their vehicles, and more. This can provide excellent relief for those with mounting debt and the feeling of losing everything.

Another aspect to note is the educational component that comes with bankruptcy. Individuals who choose to pursue bankruptcy must attend classes that include credit counseling and how to manage better finances moving forward. Some may find the information obvious, but to most, the education this step provides can better set them up for their future.

Other Advantages to Bankruptcy Vs. Debt Settlement

Some of us have heard the word “bankruptcy” throughout our lives, making us cringe. Because of this, debt settlement may seem like the better approach. However, what is only sometimes discussed is the uphill battle that some will have to endure to succeed in debt settlement. Creditors are only sometimes willing to settle for less than what is owed. This can make the process equally as frustrating as having insurmountable debt in the first place.

With bankruptcy, the courts handle the creditors owed, and both parties are forced to follow the plan as legally instructed by the courts. This helps the debtors to avoid further stress through negotiations, possible late fees, or more damage to their credit while they navigate the process.

By filing for bankruptcy, all collection efforts surrounding your debt must immediately stop.
If you have been buried under debt, you can’t pay it off; while fielding harassing phone calls from creditors with no end in sight, having the calls and the stress stop can offer a necessary feeling of relief.

Filing for bankruptcy also allows you to rebuild your credit. You can also work on improving your credit immediately following the finalization of the bankruptcy.

What Debt is Exempt from Bankruptcy?

In California, a unique set of rules apply to debt exemption, further protecting the debtors. For example, a set dollar amount (set up in two lists for the debtor to choose from ) is exempt based on the asset. There is a homestead exemption, a motor vehicle exemption, a household goods exemption, and a wildcard exemption, among many many others.

What these mean for you is that those assets of yours are protected from bankruptcy up to the dollar amounts specifically laid out in California Bankruptcy Exemptions Laws.

How Do I Start?

For most people, the idea of needing help – or considering a bankruptcy – can carry some guilt with it. I want to remind you that there is no need to be embarrassed or struggle with the decision to take charge of your debt and your financial status. You are not alone in your search for debt relief. Bankruptcy isn’t suitable for everyone, but it is a good solid option for most people seeking relief from choking debt. 

I have helped hundreds of families like yours over the years to help them understand which options are best for them. I provide invaluable support through years of experience and can walk you through the process from start to finish. 

Contact me today at (805) 244-5291 for your free, friendly, in-depth debt consultation. Or, click here right now to pick a time for your free, friendly, in-depth debt consultation

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Estate Planning Attorney Eric Ridley