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Chapter 13, Chapter 7 or debt settlement -- which is better?

Anyone in Illinois who is looking for financial relief has probably seen or heard advertisements for debt settlement programs. These are offered by firms who claim that they will work with one's creditors in order to lower and pay off one's debts. All they ask is that payments go directly to them and not to one's creditors. While the idea may sound appealing, the reality of it for many people is anything but. What really is better, trusting a debt settlement firm or just taking the leap and filing a Chapter 13 or other type of bankruptcy?

While no program is perfect, debt settlement firms are in it for the money. They charge pretty hefty fees that must be paid before they are willing to negotiate debts with creditors. On top of that, they also often fail to mention some pretty important bits of information to clients, such as:

  • Forgiven debt is considered taxable income
  • Negotiating debt can take several years
  • Debt settlement can hurt one's credit just as badly as bankruptcy
  • Filing for bankruptcy does not mean that the court will take all of one's possessions

Bankruptcy certainly has its benefits over debt settlement. First off, it is cheaper to file for bankruptcy than it is to pay the fees charged by a debt settlement company. Second, a bankruptcy case can be filed and approved relatively quickly. If filing a Chapter 7, debts may be forgiven in just a few months. If filing a Chapter 13, one may be given three to five years to pay back creditors at an affordable rate, and then remaining balances may be discharged.

So, Chapter 13, Chapter 7 or debt settlement -- which is better? While, at the end of the day, this is a decision that one must make for him or herself, the benefits of bankruptcy often outweigh the reality of utilizing a debt settlement firm. An experienced bankruptcy attorney can assist Illinois residents by reviewing their cases and helping them decide the best action to take in order to achieve financial relief.

Source:, "Debt settlement a bad alternative to bankruptcy", Liz Weston, Aug. 30, 2017

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