Chapter 13 Bankruptcy vs. Debt Settlement: Which Is Better?

Filing for Chapter 13 bankruptcy and seeking a debt settlement both provide an opportunity to get out of debt in a timely and organized manner. However, there are several differences between the two that may make one better than the other depending on your situation.

What to Know About Debt Settlement

A debt settlement means that you pay less than your current credit card, medical or other balances for less than you owe. In exchange, the creditor agrees to close your account and consider the balance paid in full. You may choose to seek out a debt settlement on your own or with the help of an outside party.

What to Know About Bankruptcy

Filing for a reorganization bankruptcy means that you agree to pay debt balances off over a period of three or five years. Any unsecured balances that remain after the repayment period ends are discharged. One of the

Key Differences Between Chapter 13 and Debt Settlement

Creditors have to agree to a request for a debt settlement, and many creditors won’t negotiate until you fall 30 or 60 days past due. Meanwhile, all qualifying debts are included in a bankruptcy, which means that you can obtain broader debt relief. Furthermore, when you file for bankruptcy, you’re protected by the automatic stay, which means that creditors can’t take their own collection actions such as placing a lien on your property.

It is important to note that a bankruptcy has a greater initial effect on your credit report compared to a debt settlement. However, information related to a reorganization bankruptcy falls off of your credit report in seven years like information related to a debt settlement. Furthermore, it may be easier to rebuild your credit after bankruptcy because you typically obtain broader relief from secured and unsecured creditors.

Which One Is Better?

To determine which is the better choice, let’s review your options side-by-side. Doing so can give you a better understanding of which one may work best.

Debt Settlement:

-Creditors don’t have to agree to your proposed settlement terms
-Settlements may require lump sum payments
-A settlement may have fewer immediate negative consequences for your credit

Reorganization Bankruptcy:

-Creditors must agree to your payment plan once approved by the court
-You’ll likely see a significant drop to your credit score
-Secured and unsecured debts can often be included in a bankruptcy filing

If you are ready to get out of debt and think bankruptcy is for you, don’t hesitate to contact the team at DeLuca & Associates Bankruptcy Law. We’ll assess your financial situation, review documents and take other steps needed to determine if you’re eligible for Chapter 13 bankruptcy. We can also help file your case and deal with your creditors if necessary.