Comparison of debt settlement and bankruptcy

Many people in South Carolina struggling to pay off debts truly desire to pay their bills and avoid bankruptcy. They might consider accepting a debt settlement deal with a credit card company or other creditor as an alternative to bankruptcy. Although settling a debt for a partial amount might present a reasonable solution in some cases, debtors should approach this route with caution.

The amount of a debt forgiven by a creditor within a debt settlement deal actually becomes taxable income to the debtor. As a result, the settlement of a debt might actually produce a large tax bill for a person at the end of the year. In contrast, debts discharged within a bankruptcy do not represent taxable income.

Bankruptcy does reflect poorly on someone’s credit report and immediately impacts the credit score. Despite these negative consequences, people have the ability to rebuild their credit scores once a bankruptcy concludes. Credit card companies might even be willing to extend secured credit cards to people with bankruptcy records. The creditors know that the consumers must wait years to file for bankruptcy again, which lowers the risk of lending in the view of some creditors.

The advice of an attorney might help someone decide between the options of settling a debt for a partial amount or filing for bankruptcy. Legal representation may help produce a settlement deal that protects the person’s rights. During a legal consultation, a person might also learn about the criteria for qualifying for bankruptcy and whether or not personal assets must be sold. When a person decides to go forward with a bankruptcy, an attorney may file the court paperwork and address issues like halting a foreclosure or stopping creditor harassment.