If you have a lot of debt, you are probably looking for any way to restore your financial solvency. Because many people stigmatize bankruptcy, debt burdened individuals may try anything to avoid it, such as going to a debt settlement agency. These organizations may attempt to dissuade you from bankruptcy by casting it in a negative light.
It is true that bankruptcy has its challenges, and your credit will suffer after completing it. However, many people have successfully rebuilt their financial health following their time in bankruptcy. As Nerdwallet explains, many debt settlement companies have tried to demonize bankruptcy through the following assertions.
You may lose almost everything
A common claim is that going through Chapter 7 bankruptcy will require you to sell off virtually everything of value that you own. In reality, many Chapter 7 filers do not lose their homes or vehicles. This is because under federal and state law, people can exempt certain kinds of property. Some people even manage to protect everything that they own from creditors.
Bankruptcy is worse on your credit score
Settlement companies also assert that your credit score will take a steeper tumble if you go through bankruptcy than if you opt for debt settlement. However, debt settlement typically inflicts just as much harm on a credit score as bankruptcy, so there is unlikely to be a great advantage by turning to debt settlement. Furthermore, credit scores tend to recover at the same rate no matter if bankruptcy or debt settlement is involved.
Bankruptcy takes too long
Some settlement companies promise a quick end to your debt problems. Unfortunately, your creditors are under no obligation to settle your debt and may not cooperate with your settlement company. The debt settlement process may take years to complete and you do not have the bankruptcy process to stop creditor efforts to collect from you.
By contrast, Chapter 7 bankruptcy usually takes a few months and a Chapter 13 bankruptcy repayment plan lasts for three to five years. Bankruptcy is more organized and gives you legal protection while you settle as much of your debt as possible.
Consider your options
It is wise to look at all available options carefully before committing to a way to resolve your debt. With Chapter 7 and Chapter 13 bankruptcy as possibilities, you can see which one offers you the best chance to improve your situation.