For those who find themselves in financial trouble, the proposition of debt settlement can seem like a godsend, but that is rarely the case. Debt settlement companies claim that they can talk your debts down to less than half of what they are now, but more often than not that, is a dangerous overstatement. There are alternatives to filing bankruptcy, and a bankruptcy attorney can help you evaluate those options and make the best decision, but debt settlement is almost always the wrong choice. Here’s why.
- Debt settlement companies offer services that you can probably do yourself.
- Debt settlement companies require you to pay them a fee, adding even more debt to your financial struggles.
- Creditors often don’t negotiate settlements until payment is past due. Debt settlement agencies will advise you to stop making payments so they can negotiate a better deal, but that can do serious harm to your credit.
- There is no obligation for the creditors to make a settlement deal, which means that falling behind on payments as advised by the debt settlement company could result in a lawsuit against you, wage garnishment, and repossessions.
- Debt consolidation does not afford protections from creditors who may sue you even after reaching a debt settlement deal.
Why Is Bankruptcy a Better Option?
- “Automatic stay” will stop all collection, foreclosure, and repossession immediately. Any action taken by creditors to collect a debt such as wage garnishment, phone harassment, repossessions, foreclosure, etc. is illegal during bankruptcy.
- All unsecured debt can be discharged during Chapter 7 bankruptcy, which means no more payments.
- Bankruptcy can discharge many types of debts, while debt settlement typically only deals in credit card debt.
- Bankruptcy offers a fresh start. While debt settlement usually hurts your credit, bankruptcy gives you an opportunity to rebuild it.