The decision to file bankruptcy or settle debts with individual creditors is one that can only be made after a thorough examination of your financial situation. There are cases where the best financial option is to settle debts with your creditors rather than file for bankruptcy relief. However, when you choose to settle debts with creditors, you must remember that there are financial consequences associated with this debt relief option, just as there are with filing a bankruptcy case.
In order to decide which debt relief option is best for you, we must first analyze your financial situation to determine what risks are involved with each solution, as well as what advantages you may gain by choosing one option over another option. To do this, I offer a free bankruptcy consultation to discuss your debt problems in detail in order to determine what options are available to you for debt relief and answer any questions you may have about filing bankruptcy or choosing to settle debts with individual creditors.
Things to Consider If You Settle Debts with Individual Creditors
We will discuss the pros and cons of settling debts during your consultation; however, below are some considerations we will discuss in more detail during your appointment.
- How many creditors do you have? If you only have a few creditors to deal with, it will be easier to settle debts with individual creditors. However, if you have 10, 20, or more creditors, it becomes overly burdensome to try to work out an agreement with each creditor and to keep track of that many payments each month. A bankruptcy filing includes all of your creditors. Creditors do not have the choice to “opt out” of the bankruptcy as they do if you offer to settle debts individually.
- Do you have a source of funds for settlement? In order to settle debts for less than you owe on the account, almost all creditors require a lump sum payment. Unless you have sufficient funds to pay all of your creditors a substantial lump sum payment, filing bankruptcy may be a better alternative. Borrowing against your home or other assets is not a wise way of obtaining funds to settle debts with unsecured creditors.
- What is the impact on your credit score if you settle debts? If you settle debts for less than is owed on the account, the creditor will report the settlement of the account, causing a negative mark on your credit report. Filing a bankruptcy case usually ends negative reporting because the account is discharged and the creditor can no longer report collections for the account.
- Are you comfortable with the tax consequences if you settle debts with individual creditors? If you settle a debt for less than is owed on the account, the creditor will report the remaining balance to the IRS as a forgiven debt. You may be required to claim this amount as income on your tax returns. There is no such requirement in a bankruptcy.
Contact an Experienced Mount Holly Bankruptcy Attorney
Personal Approach, Professional Service, Affordable Payment Plans
The Law Office of Travis J. Richards, LLC is a full-service Mount Holly bankruptcy law firm focused on Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, debt consolidation, credit repair, tax liens, student loans and foreclosure. We represent clients in Burlington County and throughout South Jersey.
Contact our office at 609-267-5297 to schedule your free consultation to discuss bankruptcy and non-bankruptcy alternatives. You may also use our convenient online contact form and one of our friendly, professional staff members will contact you to answer your bankruptcy questions and/or schedule a free consultation with Travis J. Richards.
Latest posts by Travis Richards (see all)
- Should I Use A Loan Consolidation To Solve My Debt Problem? - 08.20.2015
- Best Way to Pay Off Student Loans - 08.18.2015
- What Is Foreclosure? - 08.13.2015