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Bankruptcy is often preferable to debt settlement

When confronted with financial challenges and limited strategies to get out, many Tennessee debtors will boil their choices down to debt settlement or bankruptcy. Debt settlement companies make a great show of their skills and assert that it is better than bankruptcy. Unfortunately, desperate people may believe those assertions. However, even though the increased regulation and oversight has improved the industry, it might not be the best alternative for most people.

In the past, debt settlement companies rarely got the creditors to reduce their demands. But, even when they did, a forgiven debt does not mean that the person will not owe anything on that forgiven debt because they may still owe taxes on it.

Often, people avoid bankruptcy because they do not fully understand the process and think that they will be subject to liquidation, regardless of the chapter they file under, and they choose debt settlement instead. And, they fear the credit damage from bankruptcy. However, debt settlement still negatively effects credit scores, but the debtor is still paying off a portion of the previous debt, unlike bankruptcy. In addition, debt settlement negotiations can take a long time, which only increases financial stress and worry, and often debtors are told to stop paying their bills, which further hurts their credit.

Finally, there is the cost. Debt settlement companies typically receive 20 percent of the debt when the person enrolls in the program. As such, when calculating what is actually done, the savings might not be worth the time and negative consequences, which is why debtors should always consider bankruptcy.

Bankruptcy is a time-tested and perfectly legal method to get out of debt and have a fresh start. Depending on debtor's particular circumstances, they may be able to have their entire debt eliminated without incurring a tax penalty. For those considering debt settlement companies, speaking to an attorney is the first step toward formulating strategies to get out from under insurmountable debt.

Source: nerdwallet.com, "Debt Settlement Usually a Bad Alternative to Bankruptcy," Liz Weston, Sept. 5, 2017

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Kenneth C. Rannick, P.C.
4416 Brainerd Road
Chattanooga, TN 37411

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