11 Feb Can I file Bankruptcy if I am on a Debt Settlement?
Debt settlement does not solve your debt problems. Many creditors will not agree to debt settlement. They will file a lawsuit if your debts are not being paid. There are many debts that cannot be solved or eliminated in debt settlement. Court judgments for money owed, personal injury liability, garnishments, repossessions and claims by secured creditors cannot be eliminated in debt settlement. If you have these types of cases, your most powerful tool is to file bankruptcy. If you are already in debt settlement you can still file bankruptcy. Bankruptcy can cancel any contract you made on debt settlement without any problem. Filing bankruptcy could take between three to six months to process. Once the case is filed, no creditors will make a collection call or file a case in court because you are protected by the automatic stay of the court.
Question: What are the advantages of filing bankruptcy than entering into debt settlement?
Answer: Attorney’s fees are cheaper than fees for debt settlement. If you file bankruptcy, there will be no more lawsuits on your unsecured debts, no more garnishment, no long period of negotiation and no reporting of income to the IRS. After bankruptcy you can start fresh and begin building your credit. In debt settlement, you cannot build your credit until all debts are settled which may take years.
Question: What is debt settlement?
Answer: Debt settlement or debt consolidation is a process to negotiate to lower your debt with the creditors. You can do this yourself or hire an agency. Credit card companies will not allow debt settlement if you are current in your payments. You need to be at least three to six months late to start debt settlement. Even if you hired a debt settlement company the creditors can still file a lawsuit against you while they are negotiating your account. Not all credit card companies agree to debt settlement. Some companies want immediate cash payment before agreeing to lower the debt. Any debt forgiven must be reported to the IRS as income.
Question: How long is the process of debt settlement?
Answer: Debt settlement takes about 24 to 60 months to complete and there are no guarantee of success. Due to long period of payment plan many are dropping out of the plan. They cannot afford to pay any longer and the promised saving has no guarantee of success in the end.
Question: What are the fees of debt settlement?
Answer: Debt settlement companies’ charges vary. Some charge a flat fee of $5000 or more. Others charge about 15% to 18% of the total debt. On the other hand some charge about 25% of the savings. In the final analysis, sometimes it becomes more expensive than paying the creditors’ directly because of the fees paid to the debt settlement companies plus the monthly deposit to escrow to cover any settlement.
Note: This is not a legal advice.