Debt Settlement in Missouri

Why Bankruptcy is Almost Always a Superior Choice to Debt Negotiators

If you are like most people considering bankruptcy, you have probably looked into working with a debt negotiator or debt settlement agency.  Here are four reasons why a bankruptcy is usually a superior choice.

  1. In bankruptcy, you pay back no more to unsecured creditors than required by law.  In a no-asset chapter 7 case, you repay $0 to unsecured creditors.  In a chapter 13 case, you may have to pay back a portion to your unsecured creditors, but how much is a function of your income, your assets, and federal bankruptcy law…not the relative skill of your debt negotiator.
  2. Debts discharged through bankruptcy are not taxable income. When you settle the debt through a debt negotiator or debt settlement agency, the IRS treats the difference between what you owe and what you settle for as taxable income.  This could cause you to owe taxes to the IRS.  Debts discharged in a bankruptcy are not considered taxable by the IRS and therefore you will not owe money on the discharged debt.
  3. You are protected from lawsuits by the Federal Bankruptcy Court.  Many of our clients come to us due to lawsuits arising because their debt settlement plans are not paying their debts fast enough.  Debt negotiators don’t pay your creditors monthly.  Instead, they hold your money in escrow until they have enough to settle with one creditor.  Creditors don’t care that you paid the debt negotiation firm monthly…they just know they aren’t getting paid and that is all they care about. Federal bankruptcy law affords you a “stay” from the collection during your case, then prohibits creditors from suing in state court over uncollected debts after your case discharges.
  4. Debt settlement plans do more damage to your credit score than bankruptcy.  While bankruptcy prohibits creditors from reporting to the bureaus after the case is filed, debt-settlement plans lead to credit score destruction. Every account that goes unpaid while you’re in the plan will report your non-payment to all three bureaus.    It can take years to pay off a debt settlement plan and the entire time your credit report continues to show your non-payment. The bankruptcy is a one-time hit, after which you can then begin to rebuild.  
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