When faced with serious financial problems, you might feel like running out of choices. Well, good, at least. But you must know that the settlement of debt and bankruptcy is a process aimed at protecting you from the worst impact of financial problems.However, do you know what is needed from two options? And when one is preferred than the other? We also want to learn it, so we ask the legal professionals of bankruptcy in the offices of law Mark L. Miller in San Diego to explain the situation.

Debt Settlement Basics

The settlement of debt is quite easy – this is the process of convincing your creditors to receive a lower amount of money to complete full debt. It is very difficult to convince creditors to delete your debt part, which is why it is always recommended to have a professional to help you in the negotiation. You can enter this conversation yourself, but if you are not used to small things, your chances are not that good.

In terms of debtors, debt settlement is a good step if they can get out of paying a full amount, while also freed from debt by creditors or creditors. Also, not experiencing bankruptcy in your credit score is a great motivator to try the debt settlement first.

Why Debt Settlement Might Not Be Great

The main reason why you need to think twice before pursuing the settlement of debt instead of bankruptcy is the increase in tax that you can expect from it.Your creditors will use your debt removal as a way to reduce their own tax obligations. Basically, the removal will be treated as an income for you. Even though you will not get money directly, this debt is forgiven by getting ghost income.If you cannot afford additional tax burden, maybe the settlement of debt is not the right choice for you.

The Basics of Bankruptcy

Another option to eliminate your debt is bankruptcy. Generally there are two types of bankruptcy given to individuals, Chapter 7 and Chapter 13. Chapter 13 Basically only restructured your debt and extend your payment window. A more common choice is Chapter 7.

With Chapter 7, your debt will be deleted net and you will be protected from your creditors by law. This direct suspension is what most people are looking for from their bankruptcy cases. Another benefit of bankruptcy over debt settlement is that there will also be no impact on your tax thanks to the words of the bankruptcy code.

The Downsides of Chapter 7 Bankruptcy

What is saying, bankruptcy will appear in all your credit reports for ten years, impact your access to loans, housing and even work in some cases. The possibility is that your credit score will have a big impact and take time to recover.However, with a good plan and the use of your responsible asset, you must be able to build your credit score back in a few years.

How to Choose Between the Two

There is no simple answer to this question. It always depends on your personal situation, as well as what you want from the process.Maybe the best choice is to talk to a bankruptcy lawyer or a different financial expert and explain the situation to them. They must have a fairly clear picture of what the best choice for you.The most important thing is that you can get through a difficult situation, no matter which route you choose.