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Six Reasons to Choose Bankruptcy Over a Debt Settlement Program

For a person in financial trouble, examining options can mean the difference between a fresh start and a false start. Before you decide to use a debt settlement program to resolve your debt problem, arm yourself with information and make a wise decision. Below are six reasons that the federal bankruptcy laws may be a better choice than a debt settlement program:

First, the debt settlement process can take many months or even years, and your credit is harmed each month until the debt is settled. On the other hand, negative reporting of debts discharged in bankruptcy ends on the date you filed your bankruptcy case. Discharged debts are reported as “discharged in bankruptcy” with a “zero balance.”


Second, debt settlement programs typically settle your debt for 20% to 80. Creditors in most bankruptcy cases are paid nothing.


Third, any settled debt will have tax consequences and you may have to pay the IRS. A discharged debt has a special tax exemption and there is no tax liability.


Fourth, during the debt settlement process you may be sued, even while you or your representative attempts to settle your debt.  During bankruptcy all lawsuits are prohibited without the express permission of the bankruptcy court.


Fifth, many debt settlement companies are disreputable and lack a solid financial basis. You may lose your money and get nothing in return. The bankruptcy process is authorized by the United States Constitution and its laws are written by Congress. Only licensed attorneys admitted to practice in the federal courts are able to represent bankruptcy debtors.


Finally, the debt settlement process can take more than a year. The general rule is: the longer you don’t pay, the sweeter the settlement. Creditors are reluctant to accept less than full payment unless they believe that you may file bankruptcy. The typical chapter 7 bankruptcy case takes less than six months.


If you are considering a debt settlement program, you owe it to yourself to investigate your options and speak with an experienced bankruptcy attorney. The federal bankruptcy law is a powerful tool to eliminate your debt problem and put you on the road to financial recovery.


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