When life has dealt you a series of tough breaks and you owe more money than you think you’ll ever be able to pay back, then you might consider the two most severe options under the debt management umbrella, debt settlement or bankruptcy.
Bankruptcy’s not a singular option; however, there are two forms of bankruptcy. Chapter 7 liquidates all your eligible debts, immediately. However, chapter 13, requires you to undergo a 5 year payment plan and if you complete the plan then it will discharge any remaining eligible debt. This payment plan will be very tough; generally all your disposable income after a very stringent calculation will be paid into the plan. In some areas, only around 20% of Chapter 13’s will be successfully completed.
Chapter 7’s as expected from the above generally has a very high degree of satisfaction among participants who feel they benefited from the procedure. The expected result at the end of a chapter 13 will be that you hate your lawyer.
A chapter 13 can do something that neither a chapter 7 nor debt settlement plan can do. It can allow you to make up for a deficiency in an item secured by a loan such as your house or car. If you can pay a deficiency out of a chapter 13 and any equity beyond your bankruptcy exemptions within the 5 year plan then you can keep the property, though in many cases an outsized property led to the problems in the first place. If you own property outright above the exemptions you can use a variation of this to essentially buy the property back over the life of the 13.
So that’s the first step, if you have secured property you’d like to try to keep then you need to know what a Chapter 13 will look like and if it could enable you to achieve your desired ends in terms of keeping property. There are very few other really compelling reasons you’d want to do a Chapter 13.
That would be unless; of course you have to go through a Chapter 13 to get relief. Congress has decreed a means test forcing people above the median income for your state with some adjustments to undergo a Chapter 13 and barring the easy Chapter 7. This is out of some notion that people should pay back their debts if they make enough.
So if a 7’s out of the question or can’t achieve your goals in terms of keeping assets then you will need compare to the pros and cons of chapter 13 and debt settlement. Significant pros of bankruptcy include that it’s legally guaranteed, you can’t be sued while undergoing the process, and it’s extremely effective at stopping harassing phone calls. Debt settlement also has really large pros that should be considered in that it’s much more flexible, generally achieved in a shorter period of time, the payments tend to be smaller, and if you have extremely large paid off assets it might be your only shot at keeping them.
Both chapter 13 and debt settlement will at the end of the day be a tough road and anyone who completes either option should be congratulated.
It’s also possible that bankruptcy won’t be an option for some people. Bankruptcies have a substantial stigma attached. In that case, debt settlement might be your only valid option for reducing the effect of overuse of credit in your life.
Overall, though the only way to really decide would be to get a debt settlement plan and a bankruptcy chapter 13 and compare them side by side. You should be able to get plans from each provider and take the time to make a reasoned decision. Debt management has certain basic principles, but everyone’s situation is unique.