February 5th, 2009 by Kenneth Long
If you are drowning in debt, then you might be struggling with determining whether you should seek debt settlement or bankruptcy. There are some general rules of thumb that you may wish to consider.
I Have Lots of Unsecured Debt
If you owe substantial sums of money to several creditors, then you should understand that debt settlement is probably the least favorable option. In most cases, you simply cannot satisfy all of your creditors before they pursue a judgment. This is true whether you attempt to settle your own debts or hire an expensive debt settlement company. Either way, there is no protection from a judgment.
That being said, you might need to find out how bankruptcy works and whether you qualify. If your budget is already well in the negative and you cannot even afford to make any of your debt payments, then you might need to speak with a qualified bankruptcy attorney. This could be especially true if the total of your unsecured loans and credit card balances exceeds 150% of your annual household income.
If you can afford to pay some, but cannot pay the full minimum payments, then you might actually have another alternative. Debt management could be a way to make everyone happy while getting your credit rating back on track at the same time.
I Have Some Unsecured Debt
Having smaller amounts of unsecured debt makes bankruptcy a less appealing option. It is designed for insolvency and desperation, not for a less burdomsome debt problem.
If your debts are all charged off, then debt settlement is actually a reasonable option as long as you avoid debt settlement companies. Settling your own debt could allow you to close the account and avoid legal problems down the road. That being said, understand that you could incur an additional tax liability for any forgiven debt. If any account is settled for a savings of $600 or more, then you should expect to receive Form 1099-C which is automatically reported to the Internal Revenue Service.
This entry was posted on Thursday, February 5th, 2009 at 5:13 am and is filed under Bankruptcy, Debt Management. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.