Have you ever read the fine print for one of those debt relief companies? Here’s a sample:
“Clients who make all their monthly program deposits pay approximately 70-75% of their original enrolled debts over 24 to 60 months. Not all clients are able to complete their program for various reasons, including their ability to save sufficient funds. Our estimates are based on prior results, which will vary depending on your specific enrolled creditors and your individual program terms. We do not guarantee that your debts will be resolved for a specific amount or percentage or within a specific period of time. We do not assume your debts, make monthly payments to creditors or provide tax, bankruptcy, accounting or legal advice or credit repair services. Company does not offer debt settlement services in all states and fees may vary from state to state. In some states, we may refer you to a trusted business partner that can provide you with alternative debt relief services. Please contact a tax professional to discuss potential tax consequences of less than full balance debt resolution. Read and understand all program materials prior to enrollment. The use of debt settlement services will likely adversely affect your creditworthiness, may result in you being subject to collections or being sued by creditors or collectors and may increase the outstanding balances of your enrolled accounts due to the accrual of fees and interest. However, negotiated settlements we obtain on your behalf resolve the entire account, including all accrued fees and interest.”
In summary, using a debt relief company only gets you a 25-30% savings on your total debt; it wreaks havoc on your credit score, and there will be taxes at the end. If this was your goal, then you’ve made the right choice for debt relief.
What if you could make a payment plan that suits your budget? What if you could avoid interest, penalties to your credit score and pay no income taxes on the cancelled debt? Would you believe that it’s possible under a government approved debt repayment plan under Chapter 13 of the Bankruptcy Code? The reason you’ve never heard of a pay plan bankruptcy is because the creditors and debt settlement companies don’t want you to file bankruptcy because it’s bad for their business.
Filing for bankruptcy protection under Chapter 13 of the Bankruptcy Code even saves money when you have to pay creditors in full. Here’s how:
1. It’s all about the interest rate
Interest continues to accrue on your debts outside of bankruptcy, even when working with these debt relief companies. One of the biggest benefits of filing for bankruptcy protection is that the interest rate stops on unsecured non-priority debts like credit cards.
2. No tax consequences on debts discharged in bankruptcy
Does your debt relief plan protect you from taxes? Only a bankruptcy discharge can give you this protection.
3. It shortens the time creditors have to file claims to get paid. If they snooze and don’t file a claim, they lose out completely and this only serves to reduce your overall debt.
4. You’re protected against law suits while in bankruptcy protection.
Known as the Automatic Stay, which occurs immediately upon filing a bankruptcy case, 11 U.S.C. §362 protects against garnishments, lawsuits, foreclosures and evictions and prevents further debt collection against you once you file your case.
5. You’re in control of your budget and you get to keep your assets, while you pay what you owe.
The worst case scenario is that you’ll pay back 100% of what you owe. Many cases end up paying less, much less than the full amount, which is why you need a bankruptcy lawyer to guide you through the process.
Once you’ve looked at the dollars and sense differences, bankruptcy becomes the best path toward debt freedom. What’s not visible here is the immediate lifting of stress, a sense of control comes over you and that’s when you know you’re on the right path.