When facing overwhelming debt, debt settlement and bankruptcy are two options to consider. Each comes with distinct advantages and disadvantages, depending on your financial circumstances.
Debt Settlement
- How It Works: Negotiate with creditors to pay less than the full amount owed.
- Pros:
- Avoids court proceedings.
- Reduces debt burden without filing for bankruptcy.
- Cons:
- Negatively impacts your credit score.
- Potential tax consequences on forgiven debt.
Bankruptcy
- How It Works: Legal process to discharge (Chapter 7) or reorganize (Chapter 13) debts.
- Pros:
- Offers legal protection from creditors.
- Can discharge most unsecured debts.
- Cons:
- Severe impact on credit score.
- Public record for up to 10 years.
Choosing between the two depends on your level of debt, income, and long-term financial goals. Consulting a financial advisor or attorney can help determine the best path forward.
