Debt can be crushing. Whether you owe $20,000 in credit card debt or $100,000 from student loans, the financial pressure can feel suffocating. Fortunately, there is a solution thanks to debt settlement. It provides people a way to resolve their ongoing dues and offers a way back to financial stability.
Debt settlement isn’t without consequences, though. While you will pay less than what you owed initially, it comes at the cost of your credit score. Therefore, it becomes significantly harder for individuals to get favorable terms on mortgages, payday loans, student loans, or personal loans.
How Does Debt Settlement Work?
Debt settlement is a way of reducing your outstanding balance. This process typically involves unsecured debts, such as medical bills, court-ordered child support, and credit card bills. It doesn’t work for all obligations, including federal student loans and mortgages.
The settlement involves you or a representative negotiating with the creditors and lenders to settle what you owe. For instance, if you owe $20,000, you might agree to pay $10,000 as a lump sum. The settlements will repeat themselves for every financial institution that you owe.
Keep in mind that debt settlement is not the equivalent of a pause button. You may still be collecting late fees and interest penalties on your obligations. If you believe debt settlement is the right option for you, act swiftly and call an expert today.
What Are the Advantages of Debt Settlement?
Debt settlement can be a viable option if you want to reduce what you owe to creditors. A reputable debt settlement company or attorney will also be able to give you a timeline and projection for the length of the repayment and financial obligations. That way, you have a clear picture when it comes to expectations and preparing for the future.
The process is exponentially more straightforward when you have a financial expert on your side. A legal representative can assist you when it comes to navigating the hurdles of settling and repayment. This expertise can ensure you get a settlement that works on your terms, not the other way around.
For instance, a representative will make you produce competitive offers during your debt settlement. That can include details from the lump sum payment total to the interest rate. Plus, bankruptcy attorneys have clout when it comes to dealing with creditors and lenders so you can rest assured knowing they will protect you in case of threats or harassment.
What Are the Drawbacks of Debt Settlement?
- Debt settlement can eliminate your outstanding obligations within a year and a half. Of course, there are some potential repercussions. These repercussions include, but are not limited to:
- Damaged Credit: Your credit report and score will take a hit after the settlement. The effect can be especially dramatic if you cannot make the payments in full. It will also show up on your credit history report for the next seven years.
- Penalty and Interest Charges: As mentioned above, you will likely get dinged with additional fees. That is because many debt settlement companies encourage clients to stop making payments to lenders. There also may be fees associated with monthly maintenance of your account and the set up of the program.
- Forgiven Debts Can Be Taxable: the IRS usually views forgiven debt as a form of income. Therefore, you will have to list it on your taxes as an asset. You can learn more about the tax consequences of debt settlement here.
Alternatives to Debt Settlement
Debt settlement is not right for everyone. Many financial experts advise trying Chapter 7 bankruptcy to erase debts first. While both processes with hurt your credit scores, Chapter 7 lets you start rebuilding your financial reputation immediately.
You may also want to consider a debt management plan. This arrangement addresses sizeable outstanding debt with a credit counselor negotiating with creditors to reduce interest rates and monthly payment as well as waiving fees. The results can yield a consolidation repayment at a lower cost without having to declare bankruptcy.
Debt settlement can be a harrowing process. It requires working with creditors and lenders to reach agreeable terms that will not tank your future finances. If you decide debt settlement is right for you, make sure you have a professional debt attorney on your side.
The Pope Firm will ensure you get the representation you need for a better future. Our team will take the time to understand your situation, needs, and goals and work with you to put you in the most favorable position possible. Discover what we can do for you by calling us at (865) 324-0456 today.
We have offices located in Johnson City, Knoxville, Kingsport, Chattanooga, and Morristown, TN and want to help you through this difficult period of your life. Contact us, and we can help you to decide how to move forward with the proceedings, and you can have confidence that your steps will be guided in the right direction.
The Different Types Of Bankruptcy
Depending on your situation, there are different types, officially known as “chapters” of bankruptcy, that you can file for. These different chapters of bankruptcy provide different results for different cases, and it’s important to have some knowledge on these chapters before filing for bankruptcy.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a commonly filed for chapter of bankruptcy and is intended for use by low to moderate income individuals with more debt than they’ll ever be able to repay. If properly executed, this chapter of bankruptcy can eliminate most or all of a person’s unsecured debt. If you’re eligible, Chapter 7 could be a great debt relief solution for you.
Chapter 13 Bankruptcy
Another great debt relief solution is Chapter 13 bankruptcy, that works great for people that aren’t eligible for chapter 7 bankruptcy. This chapter allows the debtor, or person that has borrowed money, to restructure their payment plans to be more manageable. At the end of this payment plan, most unsecured debts are discharged, or eliminated. This is sure to provide some much-needed breathing room for those people that feel in over their head, and are in need of some debt relief.
If you need assistance with personal or business bankruptcy and filing in Tennessee, reach out to The Pope Firm and Charles Pope, Attorney At Law.
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Frequently Asked Questions
Bankruptcy occurs when an individual, business, or other entity declares the inability to repay its debts. If you file for bankruptcy, that means that debt collectors must pause attempting to collect debts from you. Bankruptcy often allows you to erase most, if not all, of your debts.
There are two types of debts, unsecured and secured. Some examples of unsecured debts are credit card bills, medical bills, or taxes. Secured debts can include car loans or mortgages, which use the purchased item as collateral. In many cases, filing for bankruptcy can keep this collateral protected and prevent foreclosure of your home or repossession of other assets.
Bankruptcy is governed by federal legislation under the Bankruptcy Code, which falls under the greater United States Code. Both federal law and local law inform the bankruptcy procedure. Federal bankruptcy judges, appointed by the United States court of appeals, preside over court proceedings in these cases. In court, the judge and a court trustee, review your finances to determine whether or not to discharge the debts at hand.
Each state has one or more bankruptcy courts. Tennessee has six bankruptcy courts throughout the state.
Filing for bankruptcy can be a daunting process, and working with a firm with expertise in the field can provide you with necessary guidance.
There are several types of bankruptcy. Most individuals, married couples, and small businesses choose to file under Chapter 7 or Chapter 13.
What are the Differences Between Chapter 7 and Chapter 13?
The primary difference between these two types is that Chapter 7 bankruptcy allows an entity to fully discharge its debts in a short period. A Chapter 13 bankruptcy involves reorganizing debts and creating a plan to repay those debts over an allotted time. After that time, Chapter 13 eliminates most of the remaining debts.
Chapter 7 bankruptcy is typically filed by those with very limited income and unsecured debts, the most common of which is medical bills. Chapter 13 bankruptcy is most often filed by higher income bracket individuals and those with more assets, such as a car or a home. The motivation for filing Chapter 13 bankruptcy is often preventing assets from being repossessed or home foreclosure due to outstanding debts.
What Other Types of Bankruptcy Are There?
Two other types of bankruptcy are Chapter 11 and Chapter 12.
Chapter 11 primarily applies to larger companies and corporations, but sometimes it is the right choice for small businesses as well. Chapter 12 applies to those who are considered family farmers.
Various considerations get factored into who should file bankruptcy. Filing bankruptcy may be the right choice for you if you are overwhelmed by debt. Regardless of what type of bankruptcy you file, as soon as the process begins, you are granted an automatic stay. A stay is an injunction that prevents creditors from collecting any debts for an allotted time. An automatic stay halts the process of, for example, foreclosing on a home or repossessing a vehicle.
A Chapter 7 bankruptcy will discharge most of your debts. Filing Chapter 7 is appropriate for those who make less than the median household income in Tennessee and whose assets would not be at risk. In this situation, your non-exempt property is sold to pay off creditors.
Chapter 13 bankruptcy allows you to create a plan to repay your debts. If you have non-exempt property used as collateral in secured loans, you can restructure your finances to pay off any relevant debts over the next three to five years. Chapter 11 functions in a similar way, but is exclusively for businesses.
Filing for bankruptcy can provide a fresh start for those bogged down with debt, either by restructuring finances or discharging debts entirely.
How bankruptcy affects business depends upon the type of bankruptcy filed.
Businesses classified as corporations, partnerships, or LLCs can file Chapter 11 bankruptcy. Chapter 11 allows for debt restructuring, while the business stays open. As in Chapter 7 and Chapter 13, an automatic stay activates as soon as your bankruptcy period begins. In an automatic stay, creditors cannot try to collect money or other assets from you.
During this period, you work with your lawyer to restructure your debts and develop a plan to get your business back on track. This plan must be approved by some of your creditors and a bankruptcy court to go forward. You will be able to repay your debts over several years.
Filing Chapter 7 bankruptcy discharges all of your business’s debts by liquidating your assets. The entire process can be completed quickly, often in several months. Chapter 7 allows for the discharge of most debts, excluding government taxes and fines.
Only individuals can file for Chapter 13 bankruptcy. Thus, although businesses cannot file, you can file Chapter 13 as the sole proprietor of your business.
When you decide to begin the bankruptcy process, the first step is to find a lawyer who is an expert in filing bankruptcy in Tennessee. Hiring a bankruptcy lawyer can indeed be expensive, but it is worth the cost. This professional can guide you through what type of bankruptcy is best for your situation and what to expect throughout the process.
- Collect your documents: It is important to have everything from your paystubs to your credit report available before starting.
- Take the means test. This test will determine if you are eligible for Chapter 7 bankruptcy and help guide you in making a repayment plan for Chapter 13 bankruptcy.
- Meet with a credit counselor. In the state of Tennessee, most individuals must meet with a credit counselor from an approved provider before filing for bankruptcy.
- Fill out bankruptcy forms. If working with a lawyer, you can expect they will use online programs to help you file your paperwork.
- Pay your filing fee. It costs $335 to file for bankruptcy in Tennessee. Waiver of the fee is possible in some cases, but it is uncommon. However, it is possible to pay the fee in several installments instead of the entire balance upfront.
Declaring bankruptcy wipes out many debts, but not all.
What Debts are Usually Covered by Bankruptcy?
Bankruptcy can clear most unsecured debts, including:
- Credit card bills
- Medical bills
- Overdue utility payments
Bankruptcy can also clear many secured debts, but it depends on whether you file for Chapter 7 or Chapter 13 bankruptcy. For Chapter 7, you will have to give up any non-exempt items you put up for collateral. For Chapter 13, they will become part of your repayment plan.
What Debts Are Not Covered by Bankruptcy?
- Child support
- Alimony obligations
- Those related to personal injury or death in a drunk driving case
- Any debts not listed on your bankruptcy papers
No type of bankruptcy covers these debts. If you file for Chapter 7, they remain outstanding. Under Chapter 13, you pay these debts along with your other debts.
What Debts May Be Covered?
Bankruptcy rarely covers student loan debt. However, it may be in some cases with proof of undue hardship.
Tax debt is also rarely covered, but bankruptcy may cover certain old unpaid taxes.