Once in awhile a client will ask about whether debt settlement would be a better option to filing Chapter 7 or 13 Bankruptcy.
When you are trying to settle your debt with a creditor, you must keep in mind that the creditor typically expect you to pay the settlement in full and at once. Even if you can do that for one creditor, you must be able to settle your debt with all your other creditors. Otherwise, your creditors can sue you for the balance. Once a lawsuit is final and becomes a judgment, what usually follows is wage garnishment, bank levy or judicial lien recorded on your home or other real estate.
Even if you are able to settle your debt for a lessor amount with all your creditors, you might pay additional taxes due to debt forgiveness or cancellation of debt if you do not fall under the exceptions.
In contrast, a Chapter 7 or 13 Bankruptcy discharge will eliminate the dischargeable, unsecured debts like credit cards, medical bills or payday loans. You will not have to pay taxes on the amount of debt discharged in Chapter 7 or 13 Bankruptcy because bankruptcy discharge falls under one of the exceptions.
For more information about the advantage of Chapter 7 Bankruptcy or Chapter 13 Bankruptcy, call Muoi Chea, experienced Bankruptcy Attorney in Sacramento, Stockton, Fairfield, California.