In many respects, debt settlement is an informal version of Chapter 13, since a percentage of the debt is paid back over time under both of these approaches. However, bankruptcy is always a matter of public record, whereas debt settlement is a private matter between you and your creditors.
Full Answer
Is Chapter 13 a better option than debt consolidation?
Why Chapter 13 Bankruptcy Is Better Than Debt Consolidation in New York Although Chapter 13 bankruptcy is primarily used by homeowners to deal with mortgage and auto payment arrears, a Chapter 13 bankruptcy is also a valuable tool to deal with the debts of individuals who have the ability to repay a portion, or even all of their debt.
Which debts must be repaid during Chapter 13?
During Chapter 13, the payment plan becomes effective after the court confirms it. Before the court does so, the plan must meet certain criteria regarding the repayment of your debts. Under the law, all priority and administrative expenses must be repaid in full by the end of the plan. These include attorneys’ fees, court costs, taxes ...
Which debts do I have to repay in Chapter 13?
Those debts have to be paid in full by a Chapter 13 plan. 2 They include certain income taxes, past-due alimony and child support, wages you owe someone who worked for you, and some other types of debt.
What happens if Chapter 13 bankruptcy is denied?
Bankruptcy. If a Chapter 13 bankruptcy case is dismissed, several things can happen. First, your automatic stay — put in place when you first filed — is no longer in force. That means creditors can once again take action to collect a debt, which can include harassing phone calls and letters, wage garnishment, foreclosures, repossessions ...
What is the difference between debt consolidation and Chapter 13?
A Chapter 13 bankruptcy reorganizes your debt into one lower monthly payment similar to a debt consolidation program so you only pay as much as you can afford for 5 years. It's essentially a debt consolidation, but without the requirement to pay off all of your debts.
How much less will debt collectors settle for?
Offer a Lump-Sum Settlement Some want 75%–80% of what you owe. Others will take 50%, while others might settle for one-third or less. Proposing a lump-sum settlement is generally the best option—and the one most collectors will readily agree to—if you can afford it.
What percentage do creditors usually settle for?
Typically, a creditor will agree to accept 40% to 50% of the debt you owe, although it could be as much as 80%, depending on whether you're dealing with a debt collector or the original creditor. In either case, your first lump-sum offer should be well below the 40% to 50% range to provide some room for negotiation.
Is debt settlement better than not paying?
It is always better to pay off your debt in full if possible. While settling an account won't damage your credit as much as not paying at all, a status of "settled" on your credit report is still considered negative.
What is the 11 word phrase to stop debt collectors?
If you need to take a break, you can use this 11 word phrase to stop debt collectors: “Please cease and desist all calls and contact with me, immediately.” Here is what you should do if you are being contacted by a debt collector.
How long does it take to rebuild credit after debt settlement?
Your credit score will usually take between 6 and 24 months to improve. It depends on how poor your credit score is after debt settlement. Some individuals have testified that their application for a mortgage was approved after three months of debt settlement.
Will debt collectors settle for 30%?
Lenders typically agree to a debt settlement of between 30% and 80%. Several factors may influence this amount, such as the debt holder's financial situation and available cash on hand.
Is it worth it to settle debt?
The short answer: Yes, debt settlement is worth it if all of your debt is with a single creditor, and you're able to offer a lump sum of money to settle your debt. If you're carrying a high credit card balance or a lot of debt, a settlement offer may be the right option for you.
What is a reasonable full and final settlement offer?
It depends on what you can afford, but you should offer equal amounts to each creditor as a full and final settlement. For example, if the lump sum you have is 75% of your total debt, you should offer each creditor 75% of the amount you owe them.
What are the negative effects of debt settlement?
Debt settlement can cause your credit score to fall by more than 100 points, and it stays on your credit report for seven years. If your creditors close accounts as part of the settlement process, this can cause your credit utilization to increase, which also negatively affects your credit score.
Is better to settle or pay in full?
Generally speaking, having a debt listed as paid in full on your credit reports sends a more positive signal to lenders than having one or more debts listed as settled. Payment history accounts for 35% of your FICO credit score, so the fewer negative marks you have—such as late payments or settled debts—the better.
Can I get a mortgage after debt settlement?
Most lenders won't want to work with you immediately after a debt settlement. Settlements indicate difficulty with managing financial obligations, and lenders want as little risk as possible. However, you can save enough money and buy a new home in a few years with the right planning.
What is a reasonable full and final settlement offer?
It depends on what you can afford, but you should offer equal amounts to each creditor as a full and final settlement. For example, if the lump sum you have is 75% of your total debt, you should offer each creditor 75% of the amount you owe them.
Can I negotiate with debt collectors?
You may have more room to negotiate with a debt collector than you did with the original creditor. It can also help to work through a credit counselor or attorney. Record your agreement. Sometimes, debt collectors and consumers don't remember their conversations the same way.
What percentage will Portfolio Recovery settle?
Since Portfolio Recovery likely purchased your debt for less than 8% of its original values, they would still profit if you settled to a pay a percentage of the cost. Most debt collection agencies are will settle for 1%–60% of the original debt amount.
Why do debt collectors offer discounts?
Why is that? Because the collection agency bought the original debt from your creditor, most likely for a substantial discount. That means they don't have to recover the entire amount to make a profit. By proposing a settlement, you can pay off the debt quickly, usually for less than the original amount.
Is Debt Relief Better or Worse than Chapter 13 Bankruptcy?
When considering debt relief vs. Chapter 13 bankruptcy, it is important to recognize that debt settlement is not the only form of debt relief available. As discussed, there are instances when debt settlement will be the better option than Chapter 13 bankruptcy.
What is a DCL loan?
A debt consolidation loan (DCL) consolidates multiple debts into one single loan, typically resulting in a lower overall blended interest rate and monthly payment. Funds from a DCL are immediately deployed to eliminate balances on a number of pre-existing debts, providing the dual benefit of streamlining the repayment process while simultaneously lowering interest expense and the total amount owed over time.
What is a DMP payment?
Instead of needing to keep track of and make multiple monthly payments to a variety of different creditors, a DMP allows you to make one streamlined payment to the debt help company, who then submits appropriate disbursements to creditors.
What is a debt management plan?
A debt management plan (DMP) is a structured debt relief program managed by a debt relief company that works on your behalf to negotiate lower interest rates and lower monthly payments with creditors. Instead of needing to keep track of and make multiple monthly payments to a variety of different creditors, a DMP allows you to make one streamlined payment to the debt help company, who then submits appropriate disbursements to creditors.
When is the best time to settle debt?
Therefore, if you have already fallen delinquent by four or five months, it can be an excellent time to pursue debt settlement. This is because delinquent accounts of this nature are edging closer to charge-off status, when a creditor becomes unlikely to ever recover anything from the account.
Is Chapter 13 bankruptcy a last resort?
In fact, Chapter 13 bankruptcy should generally be considered as a last resort, to be chosen only when other forms of debt relief are either impractical or unavailable. Additional types of potentially available debt relief include the debt management plan and debt consolidation, both of which can result in lower interest rates, lower interest expense over the life of the debt, and more manageable monthly payments.
Is bankruptcy a good option for a home?
However, when secured debt (such as a home mortgage or auto loan) is included, pursuing bankruptcy can be the better option, as the long-term negative consequences can be measured against the benefit of not losing a home to foreclosure or a car to repos session. Regarding income and cash flow levels, in order for debt settlement to even be an option, it must first be possible to set aside a fixed amount each month after budgeting for necessary expenses toward an eventual settlement payment. If this isn’t possible, then Chapter 13 bankruptcy becomes the default option.
What is Chapter 13 living expenses?
Living expenses: In Chapter 13, allowable living expenses are determined by the court based on IRS schedules. With debt settlement, living expenses are rarely disclosed to creditors.
How much does Chapter 13 cost?
With debt settlement, living expenses are rarely disclosed to creditors. Costs (fees, etc.) for professional assistance: Chapter 13: $1,200 to $1,800 average, normally paid up front; will probably increase under the new law. Debt Settlement: $3,000 to $5,000 averages spread over 10-18 months; may be much higher.
How long is Chapter 13?
Duration of program: 5 years with Chapter 13, versus 6 months to 3 years for debt settlement, depending on the monthly budget and other available financial resources. Who has control over the program: With Chapter 13, the court has control. Debt settlement is controlled by the consumer.
What is the difference between Chapter 13 and Chapter 7?
The major difference, of course, is that Chapter 13 represents the worst of both worlds. You get the giant B-word tattooed to your forehead (well, your credit report anyway, which amounts to the same thing), PLUS you get to pay back a big chunk of the debts included in the bankruptcy. At least with Chapter 7, you get to wipe away ...
How long does Bankrutpcy stay on credit report?
Impact on credit: Bankrutpcy remains on the credit report for 10 years, and may affect future job or loan applications beyond that.
Is debt settlement a good alternative to bankruptcy?
So it’s pretty obvious from the above that debt settlement is an attractive alternative to Chapter 13 bankruptcy. The next question is whether to hire a third-party debt settlement company or to negotiate with your creditors on your own.
Is debt settlement a private matter?
However, bankruptcy is always a matter of public record, whereas debt settlement is a private matter between you and your creditors.
WHY SETTLE, THEN?
By now you’re probably wondering, why you would settle your debts outside of a bankruptcy courtroom? Many of our eventual clients attempt debt settlement and then later come to the realization that bankruptcy would have been better.
What is debt settlement?
In debt settlement, each agreement is distinct and separate from the others and you will be responsible for coming up with a repayment figure that each individual creditor (or perhaps, a debt collection company they are paying to collect on their behalf, or sold the debt to) will accept.
How long does it take to pay off debt in Chapter 13?
In contrast, Chapter 13 bankruptcy puts your debts together into a “plan” to repay the debts over a five year period. Rather than any “negotiation” taking place between the court and each creditor, a formula called the “Means Test” is used to create a monthly payment. If the payment terms are completed, the court will permit a filer to discharge any remaining debt (with the exception of student loans and court-ordered debts) in their name.
What is the difference between Chapter 13 bankruptcy and Chapter 13 debt settlement?
The biggest difference between debt settlement and Chapter 13 bankruptcy has to be the process of reaching the “negotiated” repayment. The quotations around the word “negotiated” will make sense in a moment.
How to contact bankruptcy attorney in Yuba City?
For more information contact your Yuba City bankruptcy attorney at (530) 797-4402.
What are the advantages of debt settlement?
The primary advantage to debt settlement is retaining your financial flexibility with your assets. Since this process is not overseen by a court, you are able to sell assets, acquire more debt, etc. in order to complete your settlement with your creditors.
What is the formula for means test?
The formula behind the means test use s data about the filing party (s), such as their location, income, household size and more to determine a filer’s monthly payment. There are certain debts that must be repaid, such as mortgage arrears, vehicle loans and most tax debts.
How much of your credit card debt will you repay in chapter 13?
Some find that only as little as 10% of unsecured debts get paid back during the chapter 13.
What does Chapter 13 bankruptcy do?
Chapter 13 bankruptcy will protect you from creditors and stop the lawsuits.
How much does Capital One settlement target?
Capital One settlement targets, at the time of this feedback, do not get lower than 40%, but that is on the best of days, and when the account is only in the general collection pipeline (still withing Capital One’s internal recovery department, or assigned out to a debt collection agency).
What does "discover card settlement" mean?
Discover card settlements at the stage your account is at (lawsuit filed, but not served) means the initial cost outlay by the collection attorney is already in motion. Settling your Discover card account at this point will likely be in the same range as the CapOne account.
Does Chapter 13 bankruptcy protect you?
Having said all of that, the chapter 13 bankruptcy will protect you from creditor’s aggressive collection actions. Both Capital One and Discover are at the higher end of using litigation to collect on credit card debts that go unpaid inside of a 12 month period. Your other accounts may not sue as original creditors, but they do sell distressed credit card debt portfolios to debt buyers. Many of those debt buyers may later file suit.
Will filing an answer on Capital One buy you some time?
Filing an answer on the Capital One and Discover lawsuits will certainly buy you some time. Will it buy a couple of months? Probably, but there would likely be some discovery involved as part of the lawsuit during the time you file an answer, and any appearance.
