Bankruptcy vs. Paying Off Debt

There are people who think that bankruptcy is the worst fate ever. It’s not, and nobody gets to the point where they’re considering filing for bankruptcy without a lot of lost sleep. What bankruptcy is a way to either say, “I have nothing to pay off this debt with, or it’s ruining my life!” or “I have this debt but I can’t pay off all of it, or it will ruin my life!” or “My business has more debts than assets, but I think we could make it if I could pay some of the debt.” In this case, the options are Chapter 7 or Chapter 13 for individuals, and Chapter 11 for businesses.

A lot of people try to go it alone, paying off debt or turning to debt settlement thinking to spare their credit rating from the seven to ten year dent that it puts in their score, and the hassles that come with having bad credit. Debt settlement might be an option, but there are a few caveats. Debt settlement companies are in it to make money, let’s not forget that. They negotiate a lump sum payment to your creditors that settles your debt.

Sounds easy, right? Read on.

Debt settlement companies typically have you deposit a sum of money every month for 36 months – yep, that’s three whole years – into an escrow account that will be tapped by an independent party to settle the debts. If you’re having trouble with keeping your head above water now, think about making these deposits while still paying your bills down. Additionally, the fees for the administrator and the debt settlement company come out of that account, too. You do have some protections, such as disclosing fees and terms, how long it will take to get results, and what can happen if you stop paying your creditors in order to fund the account appropriately.

Then you can pay it off. All of it. Month after month.

Let’s say that you owe $50,000 in credit card debt. Yes, it is possible – people get a card to start paying off debt on another card, charge on the emptied card and round and round we go, racking up debt on top of debt. So, $50,000 – and if your credit is bad enough from late payments and delinquencies you can pay as much as 29.9 percent in interest. At $1,200 a month, that’s not even enough to make up the interest charges. $1,300 a month will get you on top of the interest, but you’ll be paying 1,300 a month for 129 months – almost 11 years. In fact, in order to get that term down to five years, you are looking at paying $1,760 per month, or $2,800 a month for two years.

Or, you can understand that there are worse things than having to start over. With bankruptcy, you settle your debts and exit bankruptcy free and clear. You can start over again, and while it won’t be easy, you have the chance to start building a good credit history from scratch, without payments hanging over your head. Call our offices for a free initial consultation, and let’s get you back on track.