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Broward County
954-566-9000
Palm Beach County
561-487-0200
Miami-Dade County
305-444-8660
Indian River County
772-564-1321
Your Road To A Better Future

Bankruptcy vs. debt settlement

| May 6, 2021 | Bankruptcy |

Some Florida consumers who are overwhelmed with unmanageable debt hesitate to file for bankruptcy protection because of the stigma and a belief that debt settlement might be a better option. However, debt settlement has several drawbacks that you should understand before you make a decision.

What are the effects of debt settlement?

A debt settlement involves you agreeing to take care of a debt for less than the balance owed. While this might sound like a good solution, debt settlement companies often charge expensive fees. Getting a debt settlement agreement is not automatic. You might have to become delinquent in your payments before a settlement might be considered. If you do fall behind on your payments, your creditors could choose to sue you for the delinquency instead of agreeing to settle your debts. Finally, if some of your debts are settled for less than what you owe, the IRS will consider the forgiven amounts to be taxable income if they are over a specified dollar amount. This means that you might get a large surprise tax bill during the next filing season. Unlike most unsecured debts, tax debts are generally not dischargeable in bankruptcy.

The advantages of bankruptcy

Some people think that they will lose all of their property if they file for bankruptcy. However, people can use the exemptions to keep some of their assets. In many cases, people lose very little property in a Chapter 7 bankruptcy. Chapter 13 bankruptcy provides a repayment plan that can be used to stop foreclosure and catch up on some of your payments, and no liquidation is required. When you receive a discharge of your remaining unsecured debt balances, you will no longer be responsible for paying them.

Many people who consider debt settlement companies might be better off filing for bankruptcy. People should carefully weigh their options before making a decision.