Is Bankruptcy Different from Other Forms of Debt Relief?

Any Florida resident who is struggling with debt in the New Year may be looking into options for debt relief. When you begin conducting internet searches into debt relief options, you are likely to come across a few general options that include debt settlement, debt consolidation, and bankruptcy. The differences among these forms of debt relief can be confusing, and you may be wondering if these processes are actually distinct from one another, or if you will need to seek multiple forms of debt relief. In short, bankruptcy, debt settlement, and debt consolidation are all distinct processes and forms of debt relief, but they have very different benefits and limitations.

Our West Palm Beach bankruptcy attorneys can explain some of the key differences, and we can speak with you today about whether bankruptcy or another form of debt relief is the best option for you given your specific financial circumstances.

What is Bankruptcy? 

Bankruptcy is a legal process through which individuals or businesses can get debt relief when they cannot afford the payments associated with their debts. There are many different types of bankruptcy, which generally fall into two different categories: liquidation bankruptcy and reorganization bankruptcy.

In a liquidation bankruptcy, all assets (only non-exempt assets for individuals) are liquidated, and the individual debtor gets a fresh start while a business can close its doors and end liability for business debts. In a reorganization bankruptcy, debts are reorganized in a repayment plan and repaid over time. Reorganization bankruptcies are extremely helpful for debtors who are facing foreclosure and want to keep their home because this type of bankruptcy allows a debtor to catch up on missed mortgage payments, to become current with the mortgage servicer, and to remain in the residence.

There are different eligibility requirements for different kinds of bankruptcy, and there are specific chapters of bankruptcy under the US Bankruptcy Code that are designed for individuals or businesses. To determine if bankruptcy is right for you — and if so what type — you should seek legal advice.

What is Involved in Debt Consolidation and Debt Settlement? 

Debt consolidation and debt settlement are two different processes, and both are distinct from bankruptcy. Debt consolidation involves consolidating existing debts into a single payment and creating a payment plan to repay all of the debt owed. Differently, debt settlement involves negotiating an agreed settlement amount with a creditor (or creditors) that is less than what the debtor actually owes. In exchange for the debtor paying the agreed amount, the creditor will forgive remaining debt.

While debt consolidation and debt settlement tend to have less of an impact on a person’s credit than bankruptcy, it is important to know that debtors who initially opt for debt consolidation or debt settlement may ultimately file for bankruptcy. It is important to discuss your specific circumstances with a lawyer who can advise you on your options and the best course of action.

Contact a West Palm Beach Bankruptcy Attorney Today 

If you have any questions about bankruptcy or other forms of debt relief, it is important to seek legal advice. The best type of debt relief for any given party will depend on their individual financial circumstances, including the amount and type of debt they owe, their assets, and their present employment circumstances. One of the experienced West Palm Beach bankruptcy lawyers at Kelley, Fulton, Kaplan & Eller can assess your situation for you today and can discuss the best debt relief options for you, including the possibility of a liquidation or reorganization bankruptcy filing. Contact us today for more information.

Sources:

law.cornell.edu/uscode/text/11

equifax.com/personal/education/debt-management/articles/-/learn/what-is-debt-consolidation/

cbsnews.com/news/bankruptcy-vs-debt-settlement-how-to-choose-the-right-debt-relief-option/