Some consumers in Texas choose to take care of their debts by hiring a debt consulting firm instead of filing for bankruptcy. Debt settlement companies face stricter regulations than they did in years past. However, there are consequences of settling a debt that you should know about before you make a decision about how to handle your debts.
If you opt to settle a debt by paying a lump sum for less than the full amount owed, you are required by law to pay taxes on the difference between the settlement amount and the full amount. Debt settlement companies may not explain this to consumers since they are not in the business of offering legal advice.
There are many common misconceptions about filing for bankruptcy. Many people can keep their property and discharge the full amount of their unsecured debts. Debt settlement companies often misrepresent the truth about bankruptcy by advising consumers that they face losing all their property.
Another common misconception about bankruptcy is that it will be damaging to your credit score. Both debt settlement and bankruptcy can damage your credit score, but it will begin to rise once either process is complete. Bankruptcy is often a faster option that can resolve all debts in months rather than years.
Additionally, debt settlement can be costly and more time-consuming than filing for bankruptcy. In some cases, it can make sense for debtors who do not qualify to file a Chapter 7 bankruptcy. For those who do not qualify to file Chapter 7 bankruptcy, the only option may be a Chapter 13 bankruptcy, which requires making payments for 3 to 5 years.
Debtors should explore all their options before making a decision to hire a debt settlement agency. Only attorneys are required to put their client’s interests first. Although laws regulating debt settlement businesses have become stricter in recent years, these companies are not regulated by the same ethical and professional standards that regulate attorney conduct.
A bankruptcy lawyer may help you understand whether filing for bankruptcy is beneficial for you and which type of bankruptcy you are eligible to file. Understanding all your options can help you make the right decision.