When you’re in debt, trying to navigate your options can be overwhelming. When looking at bankruptcy and debt settlement, trying to determine the best option for your needs can be complicated, as both have a considerable amount of advantages and disadvantages. The following blog explores both of these options in further detail so you can have a better understanding of your choices. Additionally, you’ll learn how consulting with a Newburgh bankruptcy lawyer can help you navigate these difficult matters.
What Is Bankruptcy?
Bankruptcy is a process that helps individuals or businesses in debt receive a fresh start by discharging debts. There are many different types of bankruptcy, like Chapter 7 which is ideal for individuals with unsecured debts. This process works by liquidating assets to pay back creditors before issuing a discharge, meaning the remaining eligible debts are eliminated.
Another option is Chapter 13, which reorganizes debt into a monthly repayment plan that will last three to five years. At the end of the repayment plan, any eligible debt is discharged. Though this process is longer, it does not put your assets at risk of liquidation.
Businesses are eligible to file Chapter 11, which works similarly to Chapter 13 by reorganizing debts into a repayment plan. However, this tends to be the most complicated and expensive option. This bankruptcy option allows businesses to continue operating, often in a downsized capacity.
What Is Debt Settlement?
Debt settlement, on the other hand, involves working with your creditors to negotiate a settlement for the debt you owe. Generally, you’ll find that the goal of this process is to reduce the total amount of debt you owe in order to completely pay off the remaining amount. It’s important to understand that only unsecured debts are eligible for settlement. As such, you cannot settle matters like mortgages or car loans.
Typically, debt settlement is achieved by working with a third-party company that will negotiate the terms and conditions of the settlement on your behalf. Creditors may be open to this option as they will receive a lump sum payment from you, even if it’s lower than the initial owed debt, as opposed to having the entire amount forgiven during bankruptcy.
How Do I Know Which Is Right for Me?
It’s imperative to understand that bankruptcy and debt settlement can both help those in debt receive much-needed relief. However, which is right for you will depend on your unique circumstances.
Bankruptcy may be in your best interest if you have a considerable amount of debt that you cannot get under control. Not only does this help completely eliminate eligible debts, but you also have protections from creditors and collection efforts during this process. However, bankruptcy can have a drastic impact on your credit score, lasting for up to ten years.
On the other hand, if you have a manageable amount of debt and are worried about your credit score, debt settlement may be in your best interest. While this can be more flexible and help protect your credit, you aren’t granted the same protections as bankruptcy. Additionally, you may incur considerable fees.
If you’re in debt and unsure how to proceed to get relief, contact the Law Offices of Michael D. Pinsky, P.C. Our team will examine your circumstances to explain your options so you can make an informed decision for your financial future. Connect with us today to learn how we can assist you.
