When you’re drowning in debt it can be difficult to know what to do to save yourself financially. In this post, we’re talking about the pros and cons of debt settlement versus bankruptcy. Debt settlement can be an appealing option if you are a relatively high income debtor. Generally speaking if you earn above the median income level in your state and you file for bankruptcy then you will generally be in a Chapter 13 plan, which generally lasts for a period of 3-5 years. If you plan on buying or selling a home or car during that time period, you will need to seek court approval. Similarly, the trustee will annually review your income so if you are expecting an inheritance or an increase in salary then a bankruptcy could end up being problematic for you. If you think you might experience any of these situations, a debt settlement can be advantageous.
However, if you are facing an imminent lawsuit, foreclosure, or repossession then bankruptcy will be the best option for you. Similarly, if your household earns below the median income level for your state, you will probably best be served utilizing a Chapter 7 bankruptcy to assist you with your financial difficulties. A Chapter 7 bankruptcy lasts for a relatively short period of time (several months) and does not have the tax implications of a debt settlement.