Debt Negotiation versus Chapter 13

by DeLadurantey Law Office, LLC on February 26, 2014

17624885_sIf you have a steady source of income but you are still struggling to make ends meet, you may be trying to decide whether debt negotiation or a Chapter 13 bankruptcy is the better option for you. While every case is unique and it is important to confer with an experienced debt relief attorney to have your situation reviewed, this blog provides a few helpful tips to consider.

One of the first factors you should consider is the cost of each option. A Chapter 13 bankruptcy filing typically costs in the range of $2500 – $4000. Although this seems expensive, your attorney fees can be included in your monthly Chapter 13 plan, which means your payments are spread out over a period of 3 to 5 years. In comparison, the cost of debt settlement is usually 10% of the amount of the debt being negotiated, which often must be paid in advance. You may also be charged monthly fees.

You must also consider the tax consequence of each option. There are no tax consequences to filing a Chapter 13 bankruptcy. In contrast, any debt waived by a creditor as part of negotiations or a settlement will result in tax liability. If the amount written-off exceeds $600, you will receive a 1099C tax form.

You must think about the time it will take to resolve your financial issues. A Chapter 13 case lasts three to five years. At the conclusion of a successful Chapter 13 case, however, you will have a fresh financial start. All of your creditors are included in the case, so your debt relief is comprehensive. Debt negotiations can occur quickly or take a significant amount of time. If you are only negotiating with one creditor, the process is more streamlined. However, if you are negotiation with several creditors, it can be more complex.

Lastly, it is important to consider the impact bankruptcy and debt negotiation will have on your credit score. A Chapter 13 filing remains on your credit report for 7 years. Debt that is noted on your report as uncollectable or waived can also remain on your report for 7 years. While both options are damaging to your credit report, they also provide you relief from your debt and the ability to begin rebuilding your credit score. With time and patience, your credit score will recover and your financial life will be back on track.

For help determining which debt relief option is best for you, contact DeLadurantey Law Office for an initial consultation.

The “defender of the little guy,” DeLadurantey Law Office. LLC. handles bankruptcy matters (Chapter 7 and Chapter 13) in Milwaukee, South Milwaukee, West Milwaukee, and Milwaukee County, including the municipalities of Bayside, Brown Deer, Cudahy, Fox Point, Franklin, Glendale, Greendale, Greenfield, Hales Corners, Oak Creek, River Hills, Shorewood, St. Francis, Wauwatosa, West Allis, and Whitefish Bay.  The firm also can handle your debt negotiations, debt relief, and mortgage loan modifications.   Contact DeLadurantey Law Office, LLC by phone: (414) 377-0518.  Like us on Facebook.

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