When I started including my thoughts on debt settlement and writing some blogs about them I was amazed at the response and the views so thank you to everyone reading them.
Many times I was able to point them in the direction they needed for their benefit not some companies benefit. So far I have estimated that 2% of the people calling me or contacting me after reading them were clients for me that I could in good conscience help and save A LOT of money (ranging from 17k-80k).
Some just needed the right direction but I had someone that wanted to know why not just file bankruptcy and wipe it all clean.
Which leads me to this blog Debt Settlement vs Bankruptcy
If you have seen, heard or look at advertisements/commercials paid for by of course lawyers who want you to pay them to file bankruptcy they paint the prettiest of pictures to make all your problems go away in a snap.
Since most people reading these blogs are not qualified candidates for me then I believe I can give a real non bias opinion and lay out the pros and cons for each and give you the tools to make an educated decision.
So let’s start with the Pro’s BUT first let’s break it down as there are 2 MAIN types of bankruptcy. Back in the old days (prior to October 2008) you could file bankruptcy in the blink of an eye, but now you need to QUALIFY for it. So it makes sense to understand the two.
- Bankruptcy Chapter 13
Chapter 13 allows those with enough income to repay all or part of their debts an alternative to liquidation. It’s bankruptcy for those whose biggest problem is dealing with creditors’ demands for immediate payment, not lack of income.
An example of this is if the bank is getting ready to take your car or home, filing bankruptcy chapter 13 can actually be done on your own and it staves off the wolves so to speak, at least for a month which buys you some time for other options.
An over simplified way to understand this is think of the courts cutting your bills in half and then a structured payment plan is paid out to the court from anywhere from 1-5 years.
- Bankruptcy Chapter 7 Is the most popular one for a variety of reasons, it allows you to walk away free and clear of any debt submitted to the courts with the exception of money owed to the government and student loans.
However now after the new laws kicked in after October 2008 you have to be “assessed” to see if you qualify for chapter 7 bankruptcy as you can no longer “just go file”. There was a means test created that you can google to read more so check that out if you are so inclined.
Bankruptcy chapter 7 stays on a credit report for 10 years, many future lenders look at this public record filing with different eyes. I recently had a client who filed Chapter 7 9 years ago and had a credit score now in the 700’s and he was denied for a credit card and the bankruptcy was the reason why. Now is that like that with all credit cards…. No. But it gives you an idea how future lenders look at bankruptcy and its given a more serious look as opposed to bankruptcy attorneys make it seem to be the ultimate tool to be free and clear.
PLUS from a credit standpoint what you need to understand that a bankruptcy is literally the worse mark you can have on a credit report. Plus from a mortgage lender position to buy ( or refinance ) if you have any more credit “hiccups” such as a collection or late payment lenders do not typically want to deal with you as they see this as a continuous problem.
Now Debt Settlement
Debt Settlement can be considered an unofficial version of Bankruptcy chapter 13 without the public record on your credit report.
It’s basically a renegotiation of the original contract but without the bankruptcy stigma attached to it.
The quality of the debt settlement depends on the company involved. Many of the ones out there wait for the credit card companies to contact them and they take the 1st offer that is given to them which is usually about 30% of what the balance was.
I just found out that company I have never heard of (which means nothing as there are thousands out there) was charging the people I am currently guiding 20% of the debt owed! Wow!!
And they operate like I have typically heard with others, they come up with a number that you pay into an account of sorts and when the pot gets large enough they say they go after accounts for you for settlement but as I mentioned they just look at the letters and see who offered what and then say “hey we got one taken care of for you and save you …..”!
In this companies specific case if they saved them 30% of the balance but they charge 20% for their fees, so they saved you 10%?????????
Typically the “bigger the company” which they like to brag about to you the worse you are treated or once the agreement is solved the phone calls do not get returned like before you signed up with them as they have moved onto the next person/revenue/paycheck.
I don’t want to go into more stories but I typically help get an average of 60-70% of a discount and the absolute worst I have ever helped people with was 50% discount.
But that will be the difference between uneducated people who are basically just looking to get as many people into their program and take the deal offered to them as opposed to someone who teats your money as if its theirs and fights for every dollar as there is a BIG difference between a company’s profits and a family.
Feel free to contact me at wayne @ waynethecreditguy .com
(remove all the spaces, I just did that to avoid getting spammed)
If you have any questions and PLEASE be as detailed as possible with your situation, such as what your current credit score is, are you on-time with payments or late and if late how late and amount owed
Wayne Sanford is a credit and finance expert with over 13 years’ experience in the industry. He has reviewed over 16,000 credit reports and appeared on local and national TV on CBS and is a contributor to many online publications as well as being an Continuing educational provider for the Texas Real Estate Commission.
I just felt the need to point this out but if i believe that after a conversation with someone after being told their complete situation and i feel that filing bankruptcy is the best option for them then i will suggest that and then discuss all the pros and cons that come along with that choice.
And i have done that, but of course while i have to make the standard disclaimer that everything i discuss with people cannot be construed as financial or legal advice i will put myself in their situation and then let them know what i would do if in that position and give them the information and then they can make their own choices based on that data.
When I was getting ready to post this blog this morning a perfect example just got emailed to me. A lady was told by a bankruptcy attorney she can’t file Bankruptcy 7 because her husband (the household) makes too much money.
Per his advice which baffles me greatly as the attorney should have asked these questions at the start since it’s not rocket science and now he is not taking/returning her calls. But now gave her advice that puts her in an even worse position now so will be talking to her later today to give her all her current options for her to decide what they think is best for their family.
I have said this for YEARS…. Just because your first name is “DR.” or last name is “ESQ.” does not mean they know EVERYTHING! It truly drives me nuts.
I learned a long time ago to doubt everyone and get several opinions, make sure I understand them and then see what is best for me and I use that to help people like you reading this and I hope it does. =)