Since 2005, Americans have choices while being in bad credit issues i.e. either to file bankruptcy or select a debt settlement company which is offering debt relief services. This article is to discuss if bankruptcy has any positive sides to look out for under bad credit problems.
The bankruptcy petition can be filed for both personal and business debts but they shall be unsecured. The total of unsecured debts shall cross $10000 to be eligible to hear in bankruptcy court. In US, the bankruptcy petition can be filed with federal court however certain decisions like exemptions from assets etc. are decided on the state courts. Hence, a mixture of court regime exists.
Costs comparison of bankruptcy v/s debt relief services
Bankruptcy requires certain costs like court fees, lawyer or attorney’s fees. However, the relief with the bankruptcy is that the fees are added in the total outstanding of the petition filer and one doesn’t require incurring any cash for it. On the other side, debt relief services can be costly because the involvement of debt settlement company asks for appointment of private experts, their fees, etc. The payment of fees can be in advance and in cash depending on the company chosen.
How come negotiations are possible quite tactfully in bankruptcy?
There is no profit motivation to attorneys of bankruptcy practice. They tend to fight based on the merits instead of margins or hourly charges received. There is a touch of social welfare as well. On the other side, the debt settlement companies may attend those who pay them at higher price instead of going for social welfare. Need not to say they are profit oriented business, after all!
In case of debt settlement programs, the skills and expertise of experts in negotiating debts matters a lot and hence it is more expert driven then the program itself. However, in case of bankruptcy the negotiation is more process driven. Court may waive certain nominal unsecured debts without any questioning e.g. credit card debts, medical bills, loans for bad credit etc. Chapter 7 bankruptcies are really niche in waiving debts in US.
There are typical situation (like that we all hear in Hollywood movies or popular TV series) like divorce wherein bankruptcy suits more than going for debt settlement companies. The combined debts in the name of spouse can be bifurcated individually by filling immediate bankruptcy petition following divorce application.
Fresh start is available to debtors
The biggest advantage of bankruptcy is that one gets second chance to manage his own debts. It is true that the social stigma will hurt, the credit score may go down and the negative mark of bankruptcy may remain longer in the credit report but one can certainly be free from the stress of debts and that’s what matter in the debt situation. One would like to think about solving the debt problem first instead of worrying about for future consequences.
After discussing all such advantages of bankruptcy, it is not a surprise why people often go for bankruptcy than any other debt solutions!