Difference Between Debt Settlement and Bankruptcy
When you are struggling with debt in Georgia, you are likely considering the options. What are options that may be available to you to get a handle on your debt so that you can free yourself from the debt-related anxiety that you have been experiencing? As soon as you begin doing some initial research, you are likely to find information about debt settlement and bankruptcy. While debt settlement and bankruptcy might seem similar, there are very important distinctions between them that you need to understand. Although both debt settlement and bankruptcy are options for getting out of debt, they work very differently. In addition to working very differently from one another, debt settlement and bankruptcy also have different effects on the debtor. Consider the following information from our Georgia debt settlement lawyer.
Debt Settlement and Its Effects
Debt settlement is a practice in which a lawyer helps you to negotiate with a creditor to reduce the amount of debt you owe in exchange for a partial payment. The debtor then agrees to forgive the remaining amount of the debt so that you can get a fresh start. In a debt settlement, the reasoning for a creditor is that they will get some of what they are owed (as opposed to none, potentially, if the debtor files for bankruptcy), so there is an incentive to accept a settlement offer. Any remaining debt is forgiven by the creditor, and the debtor must pay taxes on the amount forgiven.
While debt settlement impacts a debtor’s credit score, the impact is much less than the impact in a bankruptcy case.
Bankruptcy and Its Effects
There are two types of consumer bankruptcy, so the distinctions between debt settlement and a bankruptcy filing will depend on the type of bankruptcy filed.
In a liquidation bankruptcy, or a Chapter 7 bankruptcy, the debtor will be able to keep all “exempt” assets under Georgia law while all of a debtor’s “non-exempt” assets will be liquidated to repay creditors. All eligible debts can then be discharged, which means the debtor will no longer be liable for them. The process takes around four to six months and gives debtors a fresh start, but it also has the most severe impact on a debtor’s credit.
In a reorganization bankruptcy, a debtor “reorganizes” or “restructures” debt through a lengthy repayment plan of three to five years (usually a Chapter 13 filing, but sometimes Chapter 11 for consumers). Over the time period, the debtor makes regular payments to a trustee, who ultimately will pay off all priority debts entirely. Any remaining non-priority debts at the end of the repayment period that are eligible for discharge can be discharged. Any debts discharged under Chapter 7 or Chapter 13 cases do not incur tax liability — discharged debts do not require debtors to pay tax on the “forgiven” amount like debt settlement does. However, the credit consequences for bankruptcy are much more significant, and credit scores take a much harder hit, than in debt settlement.
Contact Our Georgia Debt Settlement Lawyers
If you are struggling with debt and need to learn more about the options that may be available to you, it is important to seek legal advice as soon as possible. The longer you wait to talk to a lawyer, the more interest you may accrue on past-due bills and the higher the creditor or debt collection fees may be that you will need to contend with. By talking with a debt settlement lawyer, you may be able to pay off a portion of what you owe while getting a fresh start. Contact one of the experienced Georgia debt settlement attorneys at Konn Law Firm LLC today to find out about whether debt settlement is right for you.
Sources:
cnbc.com/select/what-is-debt-settlement/
law.cornell.edu/uscode/text/11
