Debt Settlement vs. Bankruptcy
There are a lot of factors to consider when trying to determine whether settling your debts would be more advantageous than filing bankruptcy.
As a Bankruptcy Attorney my first inclination is to say that bankruptcy is usually the better route although it does depend. There are quite a few clients that I have helped and have been successful in negotiating principal on their outstanding debts. The things that I look for in a potential debt settlement client is the ability to pay the debt at a somewhat expedited pace. This is why most people who are broke are not great candidates for debt settlement. If you had trouble meeting your minimum payments, unless you are seeing a fast recovery bankruptcy is probably a better solution. I have seen great success in candidates who have a family member, friend, business colleague etc who will loan them money within 180 days of being behind on there debts.
The best time to settle debts for a lot of people are between 90-180 days after the pay the last payment. Credit cards will not negotiate on principal debt owed until the cardholder is behind. Therefore debt settlement will obviously have a negative effect on your credit score. For someone who is paying 30% interest on a good amount of debt, your credit score should not be your first concern as you are probably sinking in a hole that will be very hard to climb out of. Debt settlement can also work for people who what I call execution proof. Sure you can get a court judgment against someone but can you collect it.
Creditors are not going to waste their time and money filing court cases against someone with no assets to collect.
That doesn’t mean they don’t sometimes. There are certain things that would make a creditor think twice about suing you and the cost that it take to do so.
1. You don’t own any property that they could put a line on
2. You don’t make W2 wages, if you are self employed, independent contractor etc., it is more difficult if not impossible to get a wage garnishment against you.
3. You are on social security or some kind of pensions that can not be garnished by law.