Chapter 7 vs Debt Relief Company vs Chapter 13
When comparing debt settlement vs bankruptcy it is important that you're aware of the possible impact each potential solution generates. Trying to decide between debt settlement vs bankruptcy can be very overwhelming.
As you read this article and compare the chart below, you may be surprised to learn that Chapter 7 bankruptcies aren't as bad as the majority of my industry makes them out to be. In fact, if you're concerned about your future credit, you'll be surprised to learn that you will begin to recover and rebuild from a Chapter 7 bankruptcy much sooner than a long-term debt settlement plan.
Long-Term Debt Settlement vs Simultaneous Debt Settlement vs Bankruptcy
There are two ways to approach debt settlement. One way is the long-term approach (generally over 24-48 months). This method puts you in an adversarial situation with your creditors over a long period of time, greatly increases your chances of being sued, exposes you to potentially years worth of interest, stunts your ability to rehabilitate and recover, and according to this government report, has less than a 10% completion rate.
The other approach is to review your ability to settle your debts right away. Since you'll generally settle your credit card debts in a matter of months with my approach, you will minimize the adversarial nature of debt settlement, minimize your exposure to lawsuits, minimize your exposure to interest, rehabilitate and recover much more quickly, and you'll benefit from the high probability of success.
Review the debt settlement vs bankruptcy comparison chart below to compare your options in a side-by-side manner...
Debt Settlement vs Bankruptcy
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Debt Settlement with Me
Chapter 7 Bankruptcy
Chapter 13 Bankruptcy
|Time to complete the program||Generally forecasted to take 36-48 months||On average, 122 days||You generally discharge your debts within 90 days of filing||You generally discharge your debts within 3-5 years of filing|
|Possible exposure to interest and fees||Your accounts may be assessed interest until you settle them, meaning you could be exposed for years||My service greatly minimizes your exposure to interest and fees, since I settle your debts quickly||None, providing that you discharge your Chapter 7||None, providing that you complete your Chapter 13|
|Possible exposure to lawsuits||When you settle your debts over a span of years, it is very possible that your creditors will pursue you legally||My approach greatly minimizes your exposure to lawsuits, since I settle your debts in a matter of months||None, providing you discharge your Chapter 7||None, providing you discharge your Chapter 13|
|Time to recover credit - You will generally regain new, unsecured credit within 24 months of complete resolution||36-month debt settlement programs can take 5 years to recover from||My average client completes my service in 122 days, meaning they generally recover in about 28 months||You will generally regain new, unsecured credit within 24 months of completing your Chapter 7 bankruptcy||You will generally regain new, unsecured credit within 24 months of completing your Chapter 13 bankruptcy|
|Uncertainty of cost and outcome||When you take years to settle your debts, you won't know the total cost or outcome until you settle your final account||My clients have the option of not settling any debts until they know what ALL of the accounts will settle for||None, providing you discharge your Chapter 7||None, providing you discharge your Chapter 13. However, the success rates for Chapter 13 are quite low|
|Typical fee||20-25% of what you owe||10-15% of what I save you||The fee to file Chapter 7 generally ranges from $500 - $1,500||The fee to file Chapter 13 generally ranges from $3,000 - $4,000|
|Typical success rate||According to the FTC, less than 10% of consumers who enroll into a traditional debt settlement program complete it||93.19% of my clients settled or entered into a payment plan on ALL of their enrolled accounts||Nearly 100%||Success rates for Chapter 13 are 20-40%. However, it may be possible to convert to a Chapter 7 if you are not successful|
You may be asking yourself why long-term debt settlement is so unreliable...
One of the biggest reasons why debt settlement companies or attorneys have a low success rate is due to their representation and involvement on accounts where the consumers lack the funds to settle. You do not want to be represented prematurely.
Most consumers are unaware of this due to never being in the situation before, but hiring a debt settlement company to represent you before you have a financial solution available will have a negative impact on your chances of success.
The problem with this industry is that some debt settlement companies will use the aspect of immediate representation as a way to gain you as a client, since one of your main concerns is the handling and management of phone calls.
What you generally don’t know, or aren’t told, is that as soon as a debt settlement company notifies your creditor of their involvement, when no potential to settle exists, your chances of being sued go up dramatically.
The other reason has to do with the duration of time that long-term debt settlement is commonly offered.
Most debt settlement companies offer 36-48 month debt settlement programs. When in reality, debt settlement is only viable when you can settle fairly quickly.
It's important to do your research when debating bankruptcy...
In order for you to properly determine if bankruptcy is your most logical choice, you need to properly investigate all of your options.
I know it's a chore, but this is one of those situations where you need to roll your sleeves up and spend some time.
Life doesn't present many situations that are more important to get right than this one. To help you with your research, I have put together a list of articles that you will find helpful.
- When I read information on the Internet that explains bankruptcy will devastate a person's credit for 10 years, it pisses me off. Because it's absolutely 100% false.
While it is true that a Chapter 7 bankruptcy will generally report to your credit report for 10 years, it will really only affect you for most "real world" applications for just a couple years. Consumers who file Chapter 7 bankruptcy generally can obtain new, unsecured credit, favorable mortgage financing, and decent auto financing within about 2 years of discharging. Please see my article on credit after bankruptcy to learn more.
- It is important that you learn about your credit counseling options.
If your problem is more related to spending rather than suffering from a loss of income, or if your situation is more temporary and you feel your income situation will return to normal soon, you may find a debt management plan appealing. These programs are great for helping you create a budget and gaining control over any excessive spending. These programs have a good shot at being successful in these types of situations.
However, if you have suffered a loss of income and things are tight, you will have a much greater chance of not being able to sustain the "typical" 5-year program. Regardless of your situation, you should take the time to meet with a credit counselor when contemplating bankruptcy - just so you don't make any false assumptions and you can appropriately weigh the option. However, before you do, you should read my article on the role credit counseling plays in debt relief.
- You should also weigh your debt settlement options.
However, you need to become very educated about how debt settlement works. Unfortunately, for consumers and creditors alike, most debt settlement companies make their services available to a much higher segment of consumers than they should.
What a lot of people who participate in a long-term debt settlement program fail to really understand is that their creditors will be financially ignored until they're settled. So when you participate in a long-term debt settlement program that is designed to settle your debts one-by-one over 36 months for example, you generally won't be making any payments to any of your creditors for the entire time until they're settled.
This is very dangerous for you because your creditors just don't sit around and wait on your debt settlement company, rather they're attempting to collect from you the entire time. It's far from a copacetic situation, it's in fact the opposite. Debt settlement is only viable if you can settle quickly. Please see my 4-part series on how debt settlement works to get a firm understanding of how to weigh the option of debt settlement.
- You obviously should explore your bankruptcy options when debating bankruptcy.
The best way to do this is to meet with multiple bankruptcy attorneys. It will give you the chance to obtain multiple perspectives and also allow you the opportunity to determine who you feel the most comfortable with. Prior to meeting with them, be sure to ask if they offer free consultations: most do. Nacba.org has a great article on how to find a bankruptcy attorney.
- And finally, as part of your research, please read consumer advocate Steve Rhode's article on the truth about the failure rates and completion rates of credit counseling, debt settlement, and bankruptcy.
It is critical that you have a firm understanding of the likelihood of success that you may achieve when deciding on which path to take. This article will help you accomplish that.
I hope this information helps you compare your debt settlement vs bankruptcy options. Please feel free to contact me with any questions.