Bankruptcy vs. Debt Settlement

You”ve heard the ads, reduce your interest rate, make one low monthly payment, be debt free in a few years. How do these debt settlement companies work? Typically, they want you to stop paying your creditors and instead pay them. The debt settlement company will save your money (after taking out their fee, of course) and when your debts go to collections, they will give back the money so you can make settlement offers for your creditors.

Sounds good right? Except for the fact that the debt settlement company is collecting a hefty fee for their “service”, you’re not paying on your debts so your credit score is going down, and there is nothing preventing creditors from suing you and garnishing you pay and/or bank account.

A typical debt settlement plan looks like this: for a total debt of $17,594, the plan calls for payments of $420 a month for 15 months. After which, there will be a total of $5876 saved up after the debt settlement company’s fee. So for a total of $6300, assuming everything goes perfectly, you will have settled your debts and still have bad credit. What happens in real life is your creditors sue you, get a judgement and start garnishing your wages. So for your $6300 in payments, you still owe the money and still get your paycheck garnished.

Compare this to filing a Chapter 7 bankruptcy. A typical client would pay us $2000 and would get 1. Representation by an attorney, someone in Hawaii who you can call or make an appointment to see. 2. Along with the representation, we will notify your creditors of our representation and take your collection calls. 3. A Chapter 7 discharge which means you owe unsecured, nonpriority creditors NOTHING. No hoping that a creditor will settle a claim. If a Bankruptcy Judge grants your discharge, you don’t owe the money. If someone tries to collect the discharged debt, the same Bankruptcy Judge may award you money.

So what’s the better deal, $6300, still owing the debt, still getting sued and garnished, and bad credit. Or $2000, a binding Federal Court order discharging your debts, no law suits or garnishments, and bad credit.

Pay us once or pay them forever.

For another article describing the debt settlement scan, check out RYAN CALDWELL’s post.

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