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Debt Settlement vs. Bankruptcy: What's The Better Choice?

Posted By admin || 1-Sep-2011

Debt Settlement vs. Bankruptcy: What's The Better Choice?Reasons Why Bankruptcy is Often Better Than Debt Settlement

Despite the fact that debt settlement vs. bankruptcy debate is really one that is a no-brainer, there continues to be dishonest discourse about the benefits and drawbacks of debt settlement in comparison to bankruptcy.  The bottom line is that most debtors trying to avoid bankruptcy do not benefit from debt settlement for several core reasons.

Let's take a look at few of those core reasons why bankruptcy is often better than debt settlement:

Debt Settlement Is Expensive

Debt settlement is more expensive than bankruptcy because there are often many "hidden" fees built into the repayment program.  Some debt settlement companies charge fees before settling any debts while making no enforceable guarantees that they will actually settle debts. On the other hand, bankruptcy attorneys charge a flat fee for their services and are regulated by the bankruptcy court. Bankruptcy attorneys are prohibited from charging exorbitant fees and if they fail to actually file a bankruptcy on behalf of a paying debtor they can face sanctions.

Debt Settlement Companies Have No Legal Power

Debt settlement companies promise the moon; but rarely deliver. While in theory they could settle most of a debtor's debt issues the reality if less impressive. Many banks actively refuse to deal with debt settlement companies and no creditor is legally obligated to honor a debt settlement agreement. Only bankruptcy has the right to force stubborn banks and even the IRS to the negotiating table.

Debt Settlement Can Create New Tax Debt

Did you get lucky with a debt settlement company who negotiated you debts for pennies on the dollar?  If so, be prepared to have tax debt .  Debts forgiven in debt settlement are taxable.  However, if a debtor's debts are forgiven in bankruptcy, those debts cannot be taxed.

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