Debt settlement and bankruptcy are two options that people may consider when they are struggling to repay their debts. Both options have their own pros and cons, and it is important to weigh them carefully before making a decision.

**Debt settlement** is a process in which you negotiate with your creditors to pay less than what you owe. This can be a tempting option if you are facing a large amount of debt, but it is important to be aware of the risks involved. First, debt settlement can damage your credit score. When you negotiate with your creditors to pay less than what you owe, it is considered a default on your loan. This will show up on your credit report and can make it difficult to get approved for loans or other forms of credit in the future. Second, debt settlement can take a long time. It may take months or even years to negotiate with your creditors and reach a settlement agreement. During this time, you will still be responsible for making your monthly payments. If you are unable to make your payments, you may end up defaulting on your loans and damaging your credit even further.

**Bankruptcy** is a legal process that allows you to get out of debt. There are two main types of bankruptcy: Chapter 7 and Chapter 13. Chapter 7 bankruptcy is a liquidation bankruptcy, which means that your assets are sold to pay off your debts. Chapter 13 bankruptcy is a reorganization bankruptcy, which means that you create a plan to repay your debts over time.

Bankruptcy has a number of advantages over debt settlement.

First, bankruptcy will stop the collection calls and harassment from your creditors.

Second, bankruptcy will discharge most of your debt, which means that you will no longer be responsible for paying it back.

Third, bankruptcy will give you a fresh start financially. Once you have filed for bankruptcy, you will be able to start rebuilding your credit and your financial life.

Fourth, bankruptcy gets favored tax treatment. 

When you settle a debt for less than what you owe, the amount that is forgiven is considered taxable income. This means that you will have to report the forgiven amount on your tax return and pay taxes on it. However, if you file for bankruptcy and the debt is discharged, the forgiven amount is not taxable.  For example, let's say that you have a credit card debt of $10,000. You negotiate with the credit card company and agree to settle the debt for $5,000. The $5,000 that is forgiven is considered taxable income. This means that you will have to report the $5,000 on your tax return and pay taxes on it.

However, if you file for bankruptcy and the credit card debt is discharged, the entire $10,000 that is forgiven is NOT TAXABLE!!.

In my opinion, bankruptcy is a better option than debt settlement for most people. Bankruptcy is more likely to provide you with a fresh start financially, and it is less likely to damage your credit score in the long run.

If you are considering either debt settlement or bankruptcy, I urge you to talk to an attorney to get more information and to make the best decision for your financial future.

Want more info? Please contact me at your earliest convenience to schedule a free consultation to discuss the specifics of your case.

You can also self-schedule an appointment by going here:

http://butwinicklaw.com/index.php/appointments/

Jeffrey H. Butwinick, Esq.
7800 Metro Parkway
Suite 300
Bloomington, MN 55425
[email protected]
www.ButwinickLaw.com
T. 651-210-5055
F. 651-560-7135