A lot of clients come into my office and ask about whether debt settlement
or bankruptcy are best for them. In my opinion, if you are eligible for
bankruptcy, bankruptcy is a much better option most of the time. Let me
If you qualify for Chapter 7 bankruptcy and your assets can be protected,
you generally do not have to pay back any of your debt. There are exceptions
for tax debts already owed and other priority debts like child support
or alimony however credit cards almost never have to be paid back. If
you are eligible for this option another benefit of discharging your debt
in bankruptcy is that you will not have any income tax consequences. This
is because any debts discharged in bankruptcy are excluded from your gross
income according to IRS' own rules. In comparison, any debts you settle
or which a creditor voluntarily chooses not to collect may cause you to
receive a 1099-c and you may have to pay income taxes on any amount in
excess of $600 which you were forgiven or did not have to pay. This is
known as cancellation of debt income. So, unfortunately, if you choose
to settle your debts for less than you owe, you may end up owing the government taxes.
If it turns out you are only eligible to file Chapter 13 bankruptcy, this
is often still a much better alternative to settling debts. Just like
in Chapter 7 bankruptcy, you do not have the taxable income problem if
you receive a discharge. Your money and payments also go further in Chapter
13. This is because generally speaking, you pay your unsecured debts back
at 0% interest and often for just pennies on the dollar. If you must pay
secured debts in your Chapter 13, then you can often repay them over 60 months,
possibly lower your interest rate and pay any arrears you owe on secured debt interest free. If you owe
taxes, you can also derive a lot of benefits from Chapter 13 including
eliminating penalties, stopping further interest from accruing, amongst
Finally, one of the best parts of bankruptcy is the automatic stay. Many
times, when you are negotiating settlements or working with a debt consolidator,
you may end up getting sued by your creditors and have a judgment entered
against you. While this is not fair and may have other legal implications,
it does happen. In bankruptcy, all lawsuits and collections must stop
and creditors cannot pursue you in multiple ways. They have to stop the
harassment and your debts will be dealt with in the bankruptcy court.
So, if you are interested in saving money, avoiding possible tax problems
and stopping creditor harassment, bankruptcy can be a very good way to
accomplish all of these things.
Questions or interested in a free consultation about your case? Email Natasha
Meruelo, Esq. at firstname.lastname@example.org or call me at (914) 517-7565. The
first consultation is always free.
Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White
Plains, NY 10601.