Many people find themselves in a hole because of today’s complicated financial environment. To achieve stability in our finances, we have to look into our options closely, especially when faced with what seems like insurmountable debt. The two often-used strategies are bankruptcy and debt settlement. A Baltimore bankruptcy attorney can help us understand them and take our situation into account in order to arrive at an informed decision.
Understanding Bankruptcy
A legal procedure called bankruptcy is intended to assist people and business entities that are unable to pay their debts. It offers a new beginning by getting rid of some debts or setting up a payment schedule. The two main types of bankruptcy are called Chapter 7 and Chapter 13.
- Chapter 7 Bankruptcy – Non-exempt assets are sold to pay creditors in this type of bankruptcy, also called "liquidation bankruptcy." Unsecured debts, like credit card balances and medical costs, can be paid through this procedure. Some assets might need to be liquidated, and this will have a negative impact on your credit score.
- Chapter 13 Bankruptcy - Referred to as "reorganization bankruptcy," it enables people with a steady income to develop a court-approved repayment plan. This three-to-five-year scheme pays some of the overdue bills. While given the chance to keep assets like a home or car, this calls for strict adherence to the payment schedule.
Understanding Debt Settlement
Debt settlement, also known as debt negotiation or resolution, involves negotiating with creditors to settle unpaid debts for a lower amount. It is a popular choice for individuals facing financial difficulties who wish to avoid bankruptcy.
In this process, the debtor negotiates directly with creditors or with the assistance of a bankruptcy attorney, depositing regular payments into a designated account until the agreed settlement amount is reached. Once achieved, the remaining balance is discharged.
While debt settlement offers relief from bankruptcy's credit score impact, it requires strict money management to avoid legal consequences, protect one's credit rating, and consider the tax implications of forgiven debt.
Making the Decision
So, which will it be in the case of Bankruptcy vs. Debt Settlement? The choice will be highly individualized, but, mind you, we can’t do it on our own. The quantity and type of debt, the ability to pay them, which assets to keep, and the long-term effects on their creditworthiness are things to consider.
Bankruptcy is a structured legal process that may be a viable choice for people with huge debt and inadequate ability to repay. It provides a new beginning but may have a long-term effect on credit and asset ownership.
Debt settlement, on the other hand, allows for potential debt reduction through dialogue without the headaches of bankruptcy. It’s helpful for those with less severe financial trouble who want to keep a better credit score.
It’s Not the End of the World
In the end, assessing the available options and knowing the potential repercussions require consulting with a Baltimore bankruptcy lawyer—someone you can trust. They can assist you in navigating the difficulties of debt relief. People who are drowning in debt will have to decide between bankruptcy and debt settlement.
Philosopher Lao Tzu once said, “If you do not change direction, you may end up where you are headed.” With that said, we suggest you already get in touch with Richard Hackerman, a Bankruptcy Attorney in Baltimore. Call us at 410-243-8800 or 888-243-5500.
