Thinking through Debt relief and Bankruptcy is exhausting, may appear like a financial disaster, and feel like the proverbial punch in the gut to most people. It can seem daunting whether it is due to unemployment, illness, death, or overspending. These are the last options most people look at in solving the same problem – finding the most direct way out of debt. Each comes with its own advantages and disadvantages. How do you choose the right option for your situation?
To understand which option best fits your financial situation, you need to understand the similarities and the differences between debt relief and bankruptcy. Bankruptcy is designed to discharge or erase certain types and amounts of debts. Your credit score will most definitely take a beating, but Bankruptcy may often offer the fastest road out of debt. However, the long-term impact may be more significant. Bankruptcy will remain on your credit history for 7-10 years. This may get in the way of getting an auto loan or a credit card or may impede your ability to purchase a home, though most Federal guidelines only carry a one-year bar from the entry of your discharge. Bankruptcy is done through the federal court system and there are 2 Chapters to file under for consumer debtors, Chapter 7 and Chapter 13. Both become public records.
Chapter 7 bankruptcy may discharge unsecured debts, meaning you will not be required to pay them back. It clears most debt and allows you to start fresh. Chapter 7 stops creditors from pursuing collections and typically takes six to twelve months. In Chapter 7 you do not propose a monthly payment but can still end up making payments based upon a few factors. These should be discussed with a qualified bankruptcy attorney.
Chapter 13 bankruptcy requires a payment plan between 36 to 60 months in length. This may not be an option if you do not have a steady income. It may help stop creditor harassment, structure your creditors into a reasonable monthly payment, and may help you save your home or your car. Chapter 13 may protect your property from foreclosure and repossession. Once completed, you receive a discharge of debts that are dischargeable.
Debt relief, also known as debt negotiation or arbitration, does not require a court filing. This is often a private negotiation with your creditors to pay less than the amount owed, usually with a lump sum payment. Debt relief can be lengthier than bankruptcy and still damage your credit. Debt relief may be an option if your debt is not large, and you have a steady income. Unlike Bankruptcy, however, there can be tax implications for the debts that are forgiven by your creditors.
Experts state that if your monthly payments (excluding mortgage or rent) exceed 20% of your income, you have a debt problem and need to act. How severe your problem is and your ability and commitment to overcoming it will determine which path to take.
Here are some situations in which debt relief may be considered:
Scenarios where bankruptcy is the best option:
If all debt scenarios were the same, there would be a universal answer to this question. But of course, that isn’t the case at all. In some cases, debt relief is the right path; in most others, bankruptcy is likely the best course of action. And there is always the situation where neither option is the best. Unfortunately, solving overwhelming debt is not one size fits all. Speak to an attorney and allow them to give you feedback on your financial situation. No two situations will have the same solution, but there are solutions available.
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Miller, Hollander & Jeda’s founding attorneys began practicing in the early 1970s before putting down roots in the area and joining forces in 1992 to create the Naples, Florida, law firm that bears their names. Since its inception, Miller, Hollander & Jeda has focused on bankruptcy. The goal of our attorneys and our experienced staff, established at the outset and built upon year by year, is to use our extensive knowledge of bankruptcy law to answer the complicated questions you have regarding your financial trouble and help you solve your problems. We take pride in helping clients get a fresh start.
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