“V” Stands for Bankruptcy Versus Other Debt Relief Options

The typical person overwhelmed by debt really doesn’t know a lot about debt relief options. Most of them, however, seem to innately just “know” that they do not want to file for bankruptcy. It is this fear that is played upon by the debt settlement and debt negotiation outfits. I listen to their ads all the time but because I understand the law, I hear the commercials a bit differently. I find them more interesting not for what they are pitching, but what they fail to disclose to the consumer.

Don’t get me wrong. I am not suggesting bankruptcy is for everyone. I just think that a consumer should understand all their options before they make a decision. For most of the people that sit down and talk with me, bankruptcy becomes the logical choice. Here are some of the biggest differences.

If you need protection from foreclosure, car repossession, lawsuits, wage garnishments, divorce related debt or the IRS, consider bankruptcy. The phone jockey at the debt settlement outfit can’t help you. Period. End of story. If you need help getting rid of medical bills, credit cards, personal loans, and utility bills, the debt settlement guy may be able to get you a reduced balance or more favorable payment terms. Maybe. A Chapter 7 bankruptcy though can get rid of these same debts without any payments or negotiations. It just happens. Poof! Gone.

Remember, creditors do not have to negotiate their debt. Visa does not have to reduce the balance owed just because the debt negotiator called. Maybe they will. Maybe they won’t. Contrast that with a bankruptcy which is a mandatory process. The creditor cannot opt out.

There is also the potential tax liability problem. A debt which is reduced by more than $600 must be reported as income to the IRS which will increase income tax liability. For example, you owe a credit card $10,000.00. The debt settlement company reduces the debt to $2,000.00 which is a great deal. Keep in mind though that the credit card company will send you a 1099 and you will have to pay taxes on that forgiven debt. This is not negotiable. It is mandatory. This is one of the things that gets buried in the fine print. In comparison, there is no tax consequence for debt discharged in bankruptcy. You will not have to pay taxes on it.

Finally, there is the cost. The typical debt negotiator charges around 15% of the debt they settle. So if you have $20,000.00 in debt, there is $3,000.00 in fees. The typical Chapter 7 bankruptcy is much cheaper than that and you don’t have to pay anything back.

Basically, bankruptcy gives much greater protection, works faster, is less expensive and more powerful than a debt settlement. And if you have a skilled bankruptcy lawyer, it is not nearly as scary as you may think. Of course, I am bankruptcy lawyer so what else would I say, right? However, consider this: I can do what the debt negotiator does but they cannot do what I do. So who has more to hide, the lawyer or the debt settlement company?

“V” also stands for;



photo by: wallygrom