The Best Bankruptcy Alternative – Debt Settlement
You’re struggling with debt and looking for a way out, well do not think that bankruptcy is your only option. In fact, there are several legal alternatives to bankruptcy that can help you eliminate your debt faster than a Chapter 13 bankruptcy. One of the more rarely known options is debt settlement (also known as debt negotiation or debt reduction). Debt settlement reduces your debt by structuring where you are paying for just a fraction of what you owe to your creditors The can be typically less than half of your current balance that your credit card company or other creditors are claiming.
So how do you determine if you are a good candidate for debt settlement? The best way to determine if debt settlement is the right solution for you is to speak with an experienced California debt settlement attorney, who will review your financials and your personal situation and make an educated recommendation based on their analysis. We offer a free debt consultation with one of our attorneys at a local office in California near you. In the meantime there are some things to consider when considering your alternatives to bankruptcy:.
Things to Consider for Bankruptcy Alternatives
1. Your income. You may actually make too much money to qualify for a Chapter 7 bankruptcy. Even the idea that you make too much income may seem crazy, however, it’s true. Some people who are drowning in debt do not qualify for Chapter 7 bankruptcy because they make too much money. So how do you determine this? In order to determine if you qualify for Chapter 7 bankruptcy, you’ll need to calculate your average monthly income for the past 6 months. This income includes, the income on your paycheck, but also any savings, rental income, alimony/child support, investment returns, pensions or more. When you take the average from those last 6 months, if the average monthly income exceeds that of your state’s median income, you likely make too much money to file Chapter 7 and would need to find a Chapter 7 alternative.
2. Bankruptcy may not eliminate all of your debt. Some debt, such as federally backed student loans, child support and debts owed to the IRS are not dischargeable through bankruptcy, therefore you will still owe all of those balances in full.
3. Long-term consequences. The amount that your credit score drops after filing Chapter 7 bankruptcy depends in large part on the amount of negative inquiries that appear on your credit report. Generally, filing bankruptcy has been known to drops credit scores 200-250 points. In addition, bankruptcy stays on your credit report for the next 7-10 years. Yes 7-10 YEARS! Within the first few years after filing bankruptcy, many people find that they have trouble renting an apartment or purchasing a new car. Sometimes even qualifying for a typical gym membership can be difficult after you file for bankruptcy. Also consider that filing chapter 7 may require that you sell your home and/or car or other personal posessions.
Debt Settlement vs. Bankruptcy
- With debt settlement you won’t be penalized for making too much money, however, in order to make debt settlement work, it will require you to have a job or other reliable source of income.
- Debt settlement may not be able to settle all of your debts, such as those not dischargeable through bankruptcy. However, because debt settlement can reduce the overall debt you owe, it can typically make paying off these other debts more manageable.
- Debt settlement provides a foundation towards improving your credit score. Anytime you do not pay your debts per the terms of the agreement, your credit score could be affected and depending on how many payments you have missed your credit score could drop by about 50 points vs. 200-250 points with bankruptcy.
This article is not intended to confer specific legal advice but rather to provide general legal information. If you would like to speak with a licensed and experienced California debt attorney on the issue, our attorneys are experienced in this area of the law and are available for a free debt consultation.