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Debt can be a major source of stress and anxiety for many people. Whether it’s from credit card debt, medical bills, or unexpected expenses, debt can quickly spiral out of control. When you’re struggling to pay your bills, it’s important to understand what bankruptcy and debt negotiation mean, and when it may be best for you to make a decision. Table of contents
What is Bankruptcy?
Bankruptcy is a legal process that allows individuals and businesses to eliminate or repay their debts under the protection of the federal bankruptcy court. There are two main types of bankruptcy for individuals: Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy, also known as “liquidation bankruptcy,” involves selling off your assets to pay off your debts. Some assets, such as your home and car, may be exempt from liquidation. If you meet certain income requirements, you may be eligible for Chapter 7 bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy, also known as “reorganization bankruptcy,” involves creating a repayment plan to pay off your debts over a three to five year period. This type of bankruptcy is typically for individuals with a steady income who want to keep their assets.
What is Debt Negotiation?
Debt negotiation, also known as debt settlement, involves working with your creditors to negotiate a lower payoff amount on your debts. Instead of paying the full amount you owe, you agree to pay a percentage of the debt in a lump sum or over a set period of time.
When Should You Consider Bankruptcy or Debt Negotiation?
If you’re struggling to pay your bills and your debt is continuing to grow, bankruptcy or debt negotiation may be viable options. Here are some signs that it may be time to consider bankruptcy or debt negotiation:
You’re Being Harassed by Creditors
If you’re receiving constant calls and letters from creditors, it may be time to consider bankruptcy or debt negotiation. Once you file for bankruptcy or begin negotiating with your creditors, they are legally required to stop contacting you.
You’re Using Credit Cards to Pay for Necessities
If you’re using credit cards to pay for necessities like food, rent, or utilities, you may be in over your head. Continuing to use credit cards to pay for necessities will only add to your debt and make it more difficult to pay off.
You’re Falling Behind on Payments
If you’re falling behind on payments, it’s important to take action before your debt spirals out of control. Ignoring your debts will only make the situation worse.
Which Option is Right for You?
Deciding whether to file for bankruptcy or pursue debt negotiation depends on your individual circumstances. Here are some factors to consider:
The Type and Amount of Debt You Have
Bankruptcy may be a better option if you have a significant amount of debt or if your debt is primarily unsecured (such as credit card debt or medical bills). Debt negotiation may be a better option if you have a smaller amount of debt or if your debt is primarily secured (such as a car loan or mortgage).
Your Income and Assets
If you have a steady income and assets you want to keep, Chapter 13 bankruptcy may be a better option. If you have a lower income and few assets, Chapter 7 bankruptcy may be a better option.
The Impact on Your Credit Score
Both bankruptcy and debt negotiation will have a negative impact on your credit score. However, bankruptcy will have a more significant impact and can stay on your credit report for up to 10 years. Debt negotiation may be a better option if you want to minimize the impact on your credit score.
Your Future Financial Goals
Bankruptcy and debt negotiation will both have an impact on your financial future. It’s important to consider your long-term financial goals and how each option will affect them.
Consult with a Bankruptcy or Debt Negotiation Attorney
Deciding whether to file for bankruptcy or pursue debt negotiation can be a difficult decision. Consulting with a qualified bankruptcy or debt negotiation attorney can help you understand your options and make an informed decision. An attorney can also guide you through the process and help you achieve the best possible outcome.
Final Thoughts
Debt can be a major source of stress and anxiety, but there are options available to help you take control of your financial future. Bankruptcy and debt negotiation are both viable options for individuals struggling with debt. It’s important to consider your individual circumstances and consult with a qualified attorney before making a decision. With the right guidance, you can take the first step towards a debt-free future.
Attorney Logan A. Weinkauf is ready to help you. Call 508-375-3878 or use our no obligation case evaluation form on our website’s home page.