Faced with a mountain of debt, many Connecticut residents are looking for a way out. Among the available options are personal bankruptcy and debt settlement. It is important to understand the differences between the two when charting a course of action. In many ways, personal bankruptcy offers a better path out of debt than most settlement plans.
To begin, debt settlement often takes years to complete. In many cases, consumers are advised to stop making payments on their outstanding obligations while negotiations are underway. That can cause significant damage to their credit, which will take years to recover from. The risk of lawsuits during this time also increases when debts go unpaid.
Another issue involves the final settlement numbers. Many settlement companies advertise a reduction in debt that is impressively large. It is important to understand, however, that, by the time a consumer is seriously in arrears, the total debt has been bloated by fees and interest. Even if debt settlement brings the ultimate repayable amount down to 20 percent, the consumer will be responsible for taxes on the portion that was forgiven. This can result in a hefty tax bill that many people are not expecting.
When it comes to seeking lasting debt relief, Connecticut residents should consider personal bankruptcy. While no one plans to seek bankruptcy protection, it is often the solution that makes the most sense. Compared to debt settlement, personal bankruptcy is a faster, more effective and lasting solution. That makes it an option well worth considering.
Source: dailyherald.com, "Why debt settlement is still a bad alternative to bankruptcy", Liz Weston, Sept. 3, 2017