Debt Settlement versus bankruptcy

[Broke1234]

Which one is ideal ?

I owe 58k and there's like 32344 options for debt settlement online so it's overwhelming

[magyar123]

Bankruptcy, especially Chapter 7, wipes out all your debt, and no tax consequences. Debt settlements lower your debts, but you will still remain in debt - and face real tax consequences for any amount over $600.
You say you owe 58K. Assume you settle for 50% - 29k. You will still owe 29k, and for the other 29k you will get 1099s - and this is miscellaneous income which you will have to add to your actual income.

[AngelinaCatHub]

Bankruptcy, especially Chapter 7, wipes out all your debt, and no tax consequences. Debt settlements lower your debts, but you will still remain in debt - and face real tax consequences for any amount over $600.
You say you owe 58K. Assume you settle for 50% - 29k. You will still owe 29k, and for the other 29k you will get 1099s - and this is miscellaneous income which you will have to add to your actual income.

[Phillymanhere]

Do your research. There are a lot of mediocre (and worse) companies, and there are a few really good ones.

It's take some effort, but you need to search the web to find those really really good ones .....if you are thinking of the debt settlement route.

[liz417]

Remember too, the debt settlement companies offer you the "world" to sign up, but your creditors DO NOT HAVE to negotiate with debt settlement companies. With BK (ch 7 and 13), the creditors HAVE to accept what the Trustee decides to give them, if anything. Also, DS companies want you to stop paying/hold out for as long as you can in paying your creditors, what guarantees do you have that you won't be sued before than by the creditors???? I wouldn't take that chance.

Good Luck

[Broke1234]

Is it possible to do go with a settlement route without some company off the internet?

for example: I negotiate something with the Chase, discover etc...

[liz417]

Is it possible to do go with a settlement route without some company off the internet?

for example: I negotiate something with the Chase, discover etc...

Before I decided to file for BK, I tried negotiating with Chase myself (largest debt I have), but they wouldn't budge...in fact they referred me to NFCC for debt consolidation, when that didn't work out (they couldn't do anything for me because I already have excellent interest rates on all my cards), I called Chase back...again, nothing....
Remember that while you are attempting to "negotiate", you might have to deal with increasing interest rates, interest payments, late fees, etc. When you file for BK all that stops....

[Cali]

Debt Management goes on your credit report and it stays on there for 7 years.

DM's are sometimes looked upon as the same as filing C13.

Sometimes DM's make your situation worse than before you started.

[Flamingo]

All the above posters give you excellent info. Another difference between debt management and BK is that although debt management stays on your credit report for 7 years, it is eventually wiped off completely whereas filing BK will also remain on your credit reports for 7 to 10 years and although also getting removed after that period of time, remains public information forever and is always on record with any creditor that you listed in the BK. You will never be asked the question "have you ever utilized debt management services" on a job application but you may be asked "have you ever filed bankruptcy" on a job application. However, there are just differences - they should not be viewed as a reason not to file BK if BK is warranted.

[justplaintired]

I agree with other posters. Good points were made. And just for the record we actually had a bill collector call us and when we talked to them about BK verses debt settlement, she started telling us nightmare stories about people she worked with who had done debt settlement. She did not come out and recommend BK, when I told her what we thought we were going to do which was file BK, she said that we made the right decision and that we would have a fresh start by making that choice. That is coming from a bill collector who had nothing to gain by telling us this. Also she told me she had been in collections for 23 yrs. I thought that was very interesting!

[Frogge]

I agree with other posters. Good points were made. And just for the record we actually had a bill collector call us and when we talked to them about BK verses debt settlement, she started telling us nightmare stories about people she worked with who had done debt settlement. She did not come out and recommend BK, when I told her what we thought we were going to do which was file BK, she said that we made the right decision and that we would have a fresh start by making that choice. That is coming from a bill collector who had nothing to gain by telling us this. Also she told me she had been in collections for 23 yrs. I thought that was very interesting!

Wow, that is a big deal. As a person that always was told that "BK" was the worst you could ever do.... it's been amazing to see how many people ended up in BK after 'trying' DS.

[Phillymanhere]

You can try to do the debt settlement thing yourself. Here's the deal. The credit card companies, as I understand it, do not want to allow people to pay them off in monthly installments. So if you owe them $10K and they agree to cut it to $5K, they will want the $5K in a lump sum.

If you want to send me a private email, I can probably recommend a service to you ... I don't want to publicly tout any service.

I decided early on against debt settlement. It takes three years as I understand it, so it's not an automatic thing. (Basically what you're doing is paying the settlement company monthly so that they save it until you have enough to pay off the settlement.)

The problem with doing it yourself is that you most likely have no idea whether or not you have cut a good deal. The really good firms know how low a credit card company will go, how you have to bargain with them, the timing of it, etc.

Don't forget about the tax implication of settlement. Let's say you settle with Credit Card Co. #1 for 50 percent of $10k, which is 5K. Well, for your taxes that year, you had to add that 5K (the reduction) as income against which you will be taxed.

[BKParalegal]

I think some people are confusing debt settlement and debt consolidation. In regards to debt settlement, it is a lump sum payment to the creditor for satisfaction of the debt. Debt consolidation is an unstructured payment program similar to Chapter 13 and paid over time. My firm has handled many debt settlements ( and no Flamingo, I am not soliciting business ;) ) and we typically settle at 20% to 30% of the amount owed. Where most debt settlement companies fail, is that they are not attorneys and cannot realistically threaten that the client will just go BK if they don't settle and they will get nothing. Lastly, in some cases we have negotiated that the creditor not send a 1099, it is rare but it never hurts to ask.

Good Luck

[Broke1234]

I think some people are confusing debt settlement and debt consolidation. In regards to debt settlement, it is a lump sum payment to the creditor for satisfaction of the debt. Debt consolidation is an unstructured payment program similar to Chapter 13 and paid over time. My firm has handled many debt settlements ( and no Flamingo, I am not soliciting business ;) ) and we typically settle at 20% to 30% of the amount owed. Where most debt settlement companies fail, is that they are not attorneys and cannot realistically threaten that the client will just go BK if they don't settle and they will get nothing. Lastly, in some cases we have negotiated that the creditor not send a 1099, it is rare but it never hurts to ask.

Good Luck

so the person in debt has to pay 80% ?

Plus pay your firm? Plus ruin their Fico score even more? and also pay tax on the 20% they didn't pay?

[BKParalegal]

Reverse your math, the client ends up paying around 20% of the original amount, not 20% less. To simply, the client would pay around $2,000 on a $10,000 debt.