1) Its cheaper. Debt settlement is expensive. Debt settlement companies often charge you a fee of around $3000 which is usually a percentage of the amount of money that you save. This can amount to a lot more money depending upon the amount of debt you have.
Then you have to pay the debts themselves. Even a 25% payback of your creditors (which is very low) would amount to $5000 if you owed $20,000 in debts. The overall payback percentage could be as high as 60%. Some creditors may want to give no discounts or only minimal discounts.
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So if you had $20,000 in debts you would probably be paying maybe $8000 and possibly a lot more. This is a ridiculous amount compared to the cost of a bankruptcy attorney fee and filing fee. Your total cost for the bankruptcy will probably be less than $2000 and depending upon the difficulty of the case, it may be a lot less.
And it gets relatively a lot cheaper to file bankruptcy the greater your total debt amount.
2) The debts go away completely with a bankruptcy. A chapter 7 bankruptcy will wipe out your debt completely, totally and permanently. The creditors won't be able to come after you ever for your debts after a bankruptcy discharge. They would be in violation of federal law if they did. The debts will be gone.
With a debt settlement you will be relying on the company to settle these debts one at a time. Some creditors will settle and others may not. You may not have the money to finish the program. Sometimes you will drop out of the settlement program before some or all of the debts are settled and those remaining creditors will demand to get paid. In that case those unsettled debts would still remain and the creditors who you did not settle with would continue to come after you.
3) You are legally protected by bankruptcy and not with debt settlement. There is no protection from lawsuits in a debt settlement program. You could be sued at any time in that system. Many settlement companies tell their clients this.
Even so many of my bankruptcy clients were surprised when they thought their debt settlement company was handling their debts and then they received a summons because one debt collector had sued them. The debt settlement companies can do nothing to stop the suit and the client has to file bankruptcy anyway.
The settlement company will usually have you stop paying the creditors after you sign up with them. The settlement company will have you make payments into a fund that they will use to pay your creditors one by one. The problem is that the creditors who have to wait until last to get paid will not be very happy. They are the ones who are likely to sue.
Once creditors sue and get a judgment they will now demand that you pay them more money in any settlement. Armed with the judgment they may refuse to wait for you to voluntarily pay them and they could garnish your wages or reach into your bank account or lien your property. Therefore your situation can just keep getting worse.
Unlike bankruptcy, there is no legal protection in a debt settlement program. With bankruptcy there can be no collection activities of any kind once the case is filed including lawsuits. No liens may be placed on your property. The creditors are legally stopped cold when you file bankruptcy.
4) Your credit score could actually come out higher after a bankruptcy than it would after the same period in a debt settlement program. The debt settlement companies will want you to go into a "charge off" status which means that you eventually become very far behind in your payments. Your credit score then declines significantly.
It will remain low for a long period until all of your debts are settled. If you drop out of the program then you would have an even worse situation. You would have a low score, you would have spent a large amount of money you could have saved in bankruptcy, and you would still need to file bankruptcy.
At this point you have wasted money and also time when you could be rebuilding your credit. I have clients that have delayed bankruptcy for years and then come to me and say that their credit could have been restored had they filed years ago. They are right!
5) Bankruptcy makes more sense for you and debt settlement makes sense for your creditors. If you pay more, lose your score, and can still be sued when you are in debt settlement then how does this make sense for you? The answer is that it makes sense for the credit card companies. They are getting paid, the can still sue you for the entire amount owed if they don't like the settlement, and they don't have the legal system standing in their way.
There is no legal requirement that any creditor agrees to the debt settlement amount. Your creditors could demand the full payment on your debt and you would be stuck paying them or filing bankruptcy.
None of this makes any sense for you but bankruptcy often does. The debts go away legally in and permanently in bankruptcy and you don't waste any money or time attempting to deal with them. You just file, get your discharge and then begin immediately to re-build your credit.
My advice is to do the smart thing that benefits you. Exercise your legal right to discharge debts that you cannot pay by filing bankruptcy, and free yourself immediately from the debt slavery trap.
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