If you have overwhelming debt and less than stellar credit, you may be among the thousands of Florida residents struggling with debt and harassing creditors. Depending on your situation, bankruptcy or debt settlement are options that may provide debt relief, allowing you to move forward financially.
According to the U.S. Courts, bankruptcy is a legal process that wipes out debts or creates plans that help repay them.
What are chapter 7 and chapter 13 bankruptcy?
Although chapter 7 and chapter 13 can both discharge personal debt, they work very differently. Chapter 7, known as the “fresh start” bankruptcy, involves liquidating your non-exempt property to pay back creditors. Most debt that remains gets discharged. The process takes about six months.
Chapter 13, also called the “wage earners” bankruptcy, helps you repay debt using a three- to a five-year payment plan. You develop a budget that allows you to make a payment each month and a court-appointed trustee negotiates with your creditors. After you complete the last payment, the court discharges most of your remaining unsecured debt.
What is debt settlement?
Unlike bankruptcy, debt settlement is an agreement that you pay a portion of the balance due, and the creditor forgives the remainder. However, many people go through a debt settlement company, which may advise you to stop making payments to the creditor and instead give them the money.
The company holds the funds in an account until it reaches a specific amount, then contacts the creditors and negotiates the settlement. Unfortunately, there’s no guarantee that the creditor will accept a settlement, and it may take legal action. This can create more financial issues.
There are pros and cons to each option. Understanding the consequences of each can help ensure you make the right financial decision for debt relief.