Most people ignore warning signs that they may be in financial trouble when they realize they have a problem or overlook many possible solutions. You have a couple of options. Debt settlement vs Bankruptcy vs. Debt Consolidation loan- which is better?
In most cases, when people realize they have debt, they panic and attempt to work with a debt settlement company or a debt consolidation company to eliminate their debt.
Despite this, filing for Chapter 7 Bankruptcy or Chapter 13 Bankruptcy in Louisville, Kentucky, is often much better for various reasons. This article will focus on several aspects of how you should react and what the options are for you.
Debt Restructuring vs. Bankruptcy vs. Debt Consolidation
Debt settlement companies will often describe their services as debt settlement or debt consolidation. It gets confusing.
Debt Consolidation Loans
A debt consolidation loan requires you to pay a higher interest rate and almost always requires collateral. The security debt consolidation loans require is typically a second mortgage. Debt consolidation often places your home at risk by using it as security. You have not gotten rid of debt; you only converted unsecured debt into your worst enemy, secured debt.
Debt Settlement as an Option!
Debt settlement also often costs you to lose assets. Withdrawing your retirement also sacrifices an asset you can’t get back for unsecured debt, which you often could have wiped out in bankruptcy for about 2000 dollars. Your primary duty is to yourself and your family. Your duty does not involve making a debt settlement company or your creditors rich by sacrificing the assets your family needs.
Bankruptcy as an Option!
Bankruptcy essential always puts you in a better position than being sued by your creditors. Essentially the Trustee is no different than a creditor who filed a lien on your property. If you are in the process of being sued
in Kentucky, you can keep 5,000 in equity in a home. But if you file bankruptcy, you can keep 28,900 in a home as of August 2022.
These amounts increase over time, normally twice a year for bankruptcy. The last time the state exemption was increased was in the 1990s. Because bankruptcy allows you to keep more property, it
is almost always better than what banks demand in a debt settlement or debt management plan.
Debt Consolidation vs. Bankruptcy, Which is Better?
With a Debt settlement company or debt consolidation, you continue to be liable for the debt. Chapter 13 will also restructure, consolidate and settle debts by paying back loans over time. You can pay off creditors with a 3-year plan if you have less than the average income.
If you have more than the average income for your size family, you must use a 5-year plan. Secured debts you are keeping, like a home mortgage or car loan, are caught up. Unsecured debt is paid back what your family can afford.
Debt Settlement vs. Bankruptcy vs. Debt Consolidation Loan a Partial Checklist
How Bankruptcy ends up being superior to debt management plans, debt settlement, or restructuring is that with Bankruptcy:
- Your credit is immediately improved. Being overdue on debts is replaced with comments showing the account is closed.
- You pay back less in Chapter 7 or 13 than in other methods.
- You have a much better chance of success in paying off a Chapter 7 or Chapter 13 bankruptcy because a debt settlement company has over a 90% chance of failure, according to NACBA and the CFPB. The success ratio of completing a Chapter 7 in our office is about 99%. The success ratio nationwide of Chapter 13 is about 40%.
- Debt consolidation loans hurt your credit because your debt to income-ratios increases.
- A Bankruptcy attorney offers professional advice. About half the time, he is also a CPA and a lawyer with an advanced degree in accounting finance or tax law. Usually, the person offering you a debt consolidation loan makes a commission from the loan and has no accounting degree.
Debt Consolidation Loan vs. Bankruptcy
Your credit report is important. There are a lot of ways to fail in a repayment plan. I will grant that mentally; if you consolidate debt, it is easier to keep track of one payment instead of nine.
However, how will debt consolidation affect credit?
You delete some debts you have had for a long time for new debt, lowering your credit report score. You normally increase the gross amount of your debt when you consolidate debt. It may make a person feel good that they pay creditors back in full, but this could have been done in a Chapter 13 bankruptcy with a 100% plan which repaid no interest rate on the debt.
With both Bankruptcy and debt consolidation loans, you are debt free within 3 to 5 years. So what is the difference? Why choose Bankruptcy?
Chapter 13 Bankruptcy vs. Debt Settlement Companies
A debt management plan normally does not include credit counseling. You make debt payments over time. The debt consolidation companies take a portion of that payment for themselves, and debt is repaid at about 60-70% of the amount owed.
Chapter 13, however, will repay unsecured creditors often at less than 50%. A Chapter 13 plan will not be approved and confirmed unless feasible. With debt settlement companies, as long as you pay, it will be approved whether you can afford it. In a Chapter 13 bankruptcy, almost all debts can be included. Child support, student loans, and income taxes less than three years old can be repaid over time and caught up or discharged.
Debt settlement cannot force creditors to take what you offer. No law says they must agree with your debt settlement offer. With a Chapter 13 bankruptcy, you can strip and remove a second mortgage. Try getting a second mortgage to take 10% of what you owe in exchange for their mortgage when they have no equity in the home equity loan. It isn’t happening. In a Chapter 13 bankruptcy, however, you can force it.
Chapter 7 Bankruptcy vs. Debt Settlement Companies
Chapter 7 has less ability to force conditions on a creditor than a Chapter 13 bankruptcy. But nothing increases your net worth faster and cheaper than Chapter 7.
It also increases your credit score for most people with a 600-700 credit score or less. Delinquent remarks on your credit report are removed. It takes about 2000 dollars and about 10 hours of your time to eliminate all of your unsecured debt.
Most people will keep their secured home and car loans in Chapter 7. Chapter 7 does not normally eliminate income taxes less than three years old, child support, alimony, and student loans. However, sometimes it has eliminated those debts when there is a perfect storm and conditions are right.
Suppose you have 100,000 of credit card and medical bills. In that case, you can file bankruptcy and often walk out of bankruptcy court 100,000 dollars richer for 10 hours of work supplying documents and preparing a bankruptcy petition with your attorney.
When was the last time you spent 10 hours working and 2000 dollars and made 10,000 or more per hour from filing bankruptcy? It happens in our office each month. You must prove you have enough income and little or no net assets to pay your necessary expenses. It happens all the time to people who own a business.
Contact Our Law Office if You Want Debt Settlement or Debt Consolidation!
If you have a small problem like a small credit card and less than 10,000 in debt, you may want to save your ability to file bankruptcy. The right to file bankruptcy is an asset you can use if you owe 10,000 to over a million in debt.
Debt relief with a debt consolidation program is reasonable if all you owe in existing debts is a small personal loan. A little belt-tightening and saving up to pay it off is the property decision if all you owe is 10,000 or less in a personal loan or credit card debt.
Resources for Bankruptcy
Louisville, Kentucky Bankruptcy Forms
Benefits of a Chapter 7 Bankruptcy • Video
What is the Student Loan Brunner Test?
Filing Chapter 7 & Chapter 13 Bankruptcy
Student Loan Bankruptcy Qualifications
Chapter 11 Business Bankruptcy Information
If you are considering bankruptcy, don’t delay because timing is crucial. I am here to help you. So, contact my office immediately to start the conversation—Nick C. Thompson, Bankruptcy Lawyer: 502-625-0905.
