Introduction

Whether you’re considering a debt settlement program or chapter 13, this decision is bound to impact the financial future of your business.  Several considerations like your credit score at play when you decide on debt consolidation or a chapter 13 bankruptcy. 

Debt Settlement Program

In the case of credit card debt, debt settlement has become a suitable choice for consumers to get debt relief.  As the title suggests, the essence of debt settlement is to make a deal to settle the debt for a portion of what is owed.  Usually, you seek the assistance of a debt settlement firm to meet the debt settlement agreements with creditors.  Ultimately, you pay back a tiny portion of the money you owe to creditors.

Opting for a debt settlement program makes more sense when you have debt on a single account.  Today, settlement firms process agreements on your behalf.  It cuts out the need to interact with creditors personally.

Please note that if you settle a debt outside of Bankruptcy, you will likely have a tax consequence on the amount forgiven.  Essentially, the amount forgiven is viewed as income by the IRS.  Also, while settling your debts outside of bankruptcy, your creditors can and will sue you in Court.

Chapter 13 Bankruptcy

Chapter 13 remains on your credit report for 8 years after filing.  If you live in New York State, reach out to a Brooklyn bankruptcy lawyer or Yonkers bankruptcy lawyer for help.

Although it depends on your payment plan, it can take up to five years to complete a repayment plan ordered by the Court.  This process is also called wage-earner-based bankruptcy.  Remember that bankruptcy ultimately puts an end to wage garnish.

Whether you seek the help of a Westchester bankruptcy lawyer or a Rockland county bankruptcy lawyer, you’ll find out that chapter 13 bankruptcy is much different from debt settlement.  The significant aspect of Chapter 13 bankruptcy is that it is Court ordered.  That means that the Court controls your repayment plan, and it is legally enforceable.  Also, the terms of the Chapter 13 bankruptcy are not up to the creditors.

A Chapter 13 bankruptcy ultimately reorganizes and rearranges your existing debt.  On average, you need a solid plan to pay back the money to creditors in 3 to 5 years.

Benefits of Debt Consolidation

  • Maintains Credit Access

The main advantage of opting for a debt consolidation solution is to ensure access to credit that may be useful in emergencies.  Maintaining credit access is based on the assumption that a debt settlement agreement does not prohibit you from using funds.

  • Simplifies Debt Management

Once you opt for a debt settlement solution, you won’t have to deal with multiple payments at several interest rates and different creditors.  With a suitable debt settlement program, you can just make a single payment to a single creditor.

What about the Benefits of Filing Chapter 13 Bankruptcy?

It shouldn’t come as a surprise that declaring Chapter 13 bankruptcy comes with a few perks.  But filing for Chapter 13 bankruptcy protects you from multiple creditors.  It means collectors can’t engage in any activity to collect the money from you.  In fact, after filing Chapter 13 bankruptcy, you can expect harassment to stop from creditors; similarly, garnishments, repossessions, foreclosures, lawsuits, and phone calls will end as well.  And most importantly, filing for Chapter 13 bankruptcy gives you a fresh start.

The Impact on Your Credit from Debt Consolidation and Chapter 13 Bankruptcy

Your debt settlement loan will probably have a marking on your annual credit report.  Follow the modern scoring models of the credit system to understand the short-term and long-term impact of debt consolidation and the chapter 13 bankruptcy.  Ideally, if you manage to stay put on your debt, it likely won’t decrease your current credit score.  On the flip side, creditors often view loans from finance firms negatively.

Wrap Up

After debt settlement or chapter 13 bankruptcy, you can improve your credit score post-bankruptcy and debt settlement.  Since both debt relief solutions negatively impact a credit score, it makes more reason to reach out to a professional bankruptcy lawyer in NYC and focus on realistic strategies.

Once you settle the debt through a debt consolidation program or chapter 13 bankruptcy, your score may temporarily drop.  However, your credit score will likely go up after you get your discharge.  If you think about it, your debt to income ratio will be much better with no debt on your credit report.  Before bankruptcy you will have debt, and prospective creditors will see that they may need to stand in line to collect from you.  Once you have a fresh start in Chapter 13, your potential lenders will realize that you do not owe anyone money.  You may then be a much better credit risk.

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