Both Bankruptcy and debt settlement have a negative impact on one’s credit score. The debtor will likely find it difficult to obtain credit whether he / she filed bankruptcy or settled the debt for less than originally agreed. Both options result in the same damage – difficulty or inability to obtain credit.
If the debtor has other debts, bankruptcy will discharge all the dischargeable debts significantly improving the debtor’s ability to manage their finances moving forward. This often makes Bankruptcy a more advantageous option than settling one debt. There is also a tax advantage to filing for bankruptcy. The IRS deems debt forgiveness as taxable to the debtor. With a few exceptions, the amount the creditor forgives must be included as income by the debtor. The tax paid on debt settlement lessens the benefit of settling. A bankruptcy discharges the entire debt and is not taxable.
Anyone looking to resolve their debts should consult with an experienced Bankruptcy attorney before making a final decision. While Bankruptcy can provide advantages that debt settlement can’t, there are reasons some individuals are better off not filing Bankruptcy. For example, if someone’s job relies on maintaining a security clearance, there is a chance that Bankruptcy may disqualify that person from maintaining their clearance. Discussing your specific circumstances and needs with an experienced Bankruptcy attorney is crucial to making the best decision for you.
Regardless of which option a debtor chooses, the more important issue are the steps taken by the debtor to restore his / her credit. Filing Bankruptcy will be the last negative reported on one’s credit report if they manage their finances properly moving forward. The same applies to debt settlement, but only if all debt is settled.
There are many ways to begin restoring a person’s credit once all debts are settled or discharged in bankruptcy. Some of our clients have seen a 100+ point improvement in the first year. How a debtor manages their finances after is more important than the method they use to clear their debt.
Please contact us for a free consultation to determine if bankruptcy is the right choice for you.
Bankruptcy Attorneys Serving Danbury, Connecticut and all of Fairfield and New Haven Counties.
