Kansas City Bankruptcy Attorneys Explain Your Options
Defaulting on debts can lead to multiple negative consequences. Your wages could be garnished. Creditors could repossess your secured debts. In other cases, you could enter a debt spiral that affects your finances for years to come.
If you are experiencing a debt crisis, then you should explore options for resolving your situation as soon as possible. The longer you wait to resolve your debts, the longer it will take to get your finances back on track.
Debt settlement and bankruptcy are two debt relief options you could consider. However, these are two very different options. You should consider the differences between bankruptcy and debt settlement before making your decision and very closely look at any and all fees Debt Settlement companies charge.
What Is Debt Settlement?
Debt settlement is where you hire a company to work with your creditor to pay less than what you initially owed. While this might be a good option for small debts, it may lead to problems if you are heavily in debt. If you are truly facing a difficult financial situation, then you are probably not going to be able to save enough to negotiate a settlement with your creditors. There are some other drawbacks to debt settlement included below.
- Tax bills. You may have to pay taxes on the amount of debt forgiven. The IRS might consider the forgiven amount as taxable income.
- Lump sum payment. With debt settlement, you pay your creditor a lump sum payment instead of installment payments. This could be very difficult to pull off if you lack the funds.
- No protection from creditors. If you are in default or far behind on payments, other creditors could begin pursuing collection actions, such as a wage garnishment.
- Hidden fees. If you use a debt settlement company, there may be upfront or hidden fees. Depending on what your financial situation looks like, these fees could cause you more financial harm.
Should I File for Bankruptcy?
Most consumer bankruptcies are Chapter 7 or Chapter 13 bankruptcy cases. Below, we explain how each works and some advantages you may obtain with this option.
- Chapter 7 bankruptcy. With a Chapter 7 bankruptcy, you may be able to discharge your debts while keeping your most important assets. As we mention on our website, in 99 percent of cases, you can discharge debts while keeping personal property.
- Chapter 13 bankruptcy. This option allows you to pay back a portion of your debts over a three to five-year repayment plan. For this reason, Chapter 13 is often referred to as the wage earner’s plan. You need some type of income for the bankruptcy court to approve your Chapter 13 repayment plan. There are other requirements for a Chapter 13 bankruptcy that you should review on our site.
Contacting Our Kansas City Bankruptcy Attorneys
You should discuss your financial situation with a bankruptcy attorney before considering debt settlement. There are additional advantages and disadvantages our blog does not discuss. The Kansas City bankruptcy attorneys at The Sader Law Firm can review your situation and help you decide on your options.