Those who are dealing with overwhelming debt should consider the advantages of both bankruptcy and debt settlement.
People in Nevada struggling with overwhelming amounts of debt often look for a way to find relief. While bankruptcy can be a beneficial solution, those seeking debt relief may also want to consider enrolling in a debt settlement program.
According to the United States Courts, bankruptcy is designed to help people either participate in a plan that helps them repay their debts or discard their debts. Those who decide to file bankruptcy begin the process by filing a petition in bankruptcy court, and this petition can either be filed by a single individual or spouses.
There are two main types of consumer bankruptcy people can file for: Chapter 7 bankruptcy and Chapter 13 bankruptcy. According to the Federal Trade Commission, Chapter 7 bankruptcy requires all non-exempt assets to be sold in order to pay off a portion of the debt. Exempt items can include basic household furnishings, work-related tools and vehicles.
Comparatively, Chapter 13 bankruptcy allows debtors with a steady income to keep property that they might not have been able to retain by filing Chapter 7, such as a car or a mortgaged home. Under this type of bankruptcy, a three to five-year repayment plan is approved by the court to pay off debt.
It is also not widely known that bankruptcy is an option not only for consumer debt but also certain tax debt. There is certain criteria to meet in order to discharge the tax debt but the good news is that debtor is not always subject to income test in order to qualify for tax bankruptcy. A qualified tax attorney can help with this analysis.
As opposed to bankruptcy, debt settlement programs are overseen by for-profit companies instead of the government. Through debt settlement, debtors pay a settlement that is less than the full amount of debt they owe. To come up with this settlement, most programs ask people to save a certain amount every month and put it into an escrow-like account. Then, the funds remain in the account until a settlement is reached.
Although debt settlement can be a good debt relief option for some people, those who decide to enroll in one of these programs should be aware of their risks. For example, those who save up a certain amount for a settlement need to remember that their creditors are not obligated to settle their debts for that amount. Additionally, many debt settlement programs request that participants stop paying off their creditors, so debtors need to be aware that their credit score may drop significantly.
In terms of tax debt, the IRS also had settlement programs and initiatives but unlike any consumer debt negotiations, settlement with the IRS is subject to strict guidelines. The expertise of a skilled tax attorney can help navigate the waters of IRS to determine whether debtor qualifies for settlement.
Deciding whether to file bankruptcy or participate in a debt settlement program is an important decision, and those dealing with debt should be aware of the advantages and risks of both options. Those in Nevada should consider reaching out to an attorney near them for assistance making this important decision.
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