Bankruptcy compared to debt settlement – What is the difference? There are significant differences between the two options. These difference should be carefully considered before taking any action to fix your debt problems.
Bankruptcy Compared to Debt Settlement – Taxes
One of the biggest differences is involves taxes. There are no tax consequences from filing for bankruptcy. You do not owe taxes on unpaid debts that at discharged in a bankruptcy. There is a myth that you have to pay income taxes on discharged debt. This is not true. If you do NOT file for bankruptcy, some companies will issue 1099 for forgiven debt. If you do not file for bankruptcy, that debt forgiveness can be considered income by the IRS. Debt forgiveness for mortgage debt is not taxable even if you do not file for bankruptcy.
Bankruptcy Compared to Debt Settlement – Credit Report
The second big difference is your credit score and credit history. If you file for bankruptcy your credit is cleared and you can begin improving your credit immediately. When you file for bankruptcy your credit will go down and as you start using credit again, it will begin to go up to normal levels after about 24 months. In contrast, if you attempt to settled your debts with your creditors, your credit will continue to suffer. Your credit report will state that you did not pay the debt in full and you negotiated a reduction. This will hurt your credit. It will not be reported as paid “in full”. You also cannot negotiate to require them to state “paid in full”.
Sometimes debt settlement can have advantages over bankruptcy. The biggest benefit happens if you have assets that exceed your exemptions. If you settle you debts you will not have to address exemption problems with the bankruptcy trustee. Secondly, if you have high income, your chapter 13 bankruptcy may pay 100 % to your unsecured creditors. You can save money by negotiating the debt to less than 100 percent. This could also save you money overall. It is important to discuss your options with a qualified bankruptcy attorney before taking any action.
Who can I talk to about more bankruptcy information?
You can speak to a bankruptcy lawyer immediately to review your specific case. We offer a free consultation to review your case.
How do I get started with my bankruptcy started?
Getting started is easy. Just pickup the phone and call our office. You will speak to a bankruptcy attorney immediately.
KRUPP LAW OFFICES PC
Grand Rapids Bankruptcy Lawyer
161 Ottawa NW Suite 404
Grand Rapids MI 49503
616-459-6636