Bankruptcy is often a misunderstood concept, especially since those who face it are likely to be frightened and confused by the situation they are in. A lack of understanding about the details of types of bankruptcy can lead people to make rash decisions and end up spending more time and money on the road to financial health.
Debt settlement – a negotiated path out of a debt that does not require a declaration of bankruptcy – is an attractive option to those who fear facing even the prospect of bankruptcy. It is often no longer at a heavy price, with upfront fees that exacerbated debt, although changes in the industry may have hidden risks elsewhere.
A woman who chose debt settlement over bankruptcy did not realize that she was still liable for a hefty tax bill on forgiven debt. A man avoided bankruptcy at all costs because he thought he would lose personal possessions and not just those of high capital value.
One of the main problems with debt settlement is the time it takes. Customers may settle more than half their debt but the process can drag out as long as four years. Meanwhile, debts are not being serviced and debtors risk being sued or have other actions begun against them during the process.
The largest black mark against bankruptcy – loss of assets – is not as serious as it first seems. Far from bidding farewell to possessions that have value to individuals and families, many can use bankruptcy to clear debts in three to six months while state laws protect most types – especially vital types – of their assets.
It is advisable to seek legal counsel and representation if you are facing debts significant enough to consider bankruptcy or debt settlement. The hidden perils and promises are more easily pointed out by an experienced bankruptcy lawyer.
Source: Lima Ohio, "Debt settlement a bad alternative to bankruptcy," Liz Weston, Sep. 02, 2017