Bankruptcy vs. Debt Relief: What’s Right For You and How We May Be Able To Help

January 11, 2023

What is Bankruptcy?

Bankruptcy is a legal proceeding that happens when a person or a business does not have enough money to pay all of its debts.

What is Chapter 13 bankruptcy?

A Chapter 13 bankruptcy is also called a wage earner’s plan. It makes it possible for individuals with regular income to develop a plan to repay all or part of their debts. With a chapter 13 bankruptcy a repayment plan is put into place and can last for a period of three to five years.

What is Chapter 7 bankruptcy?

Unlike a Chapter 13 bankruptcy, a Chapter 7 bankruptcy does not involve a repayment plan. Chapter 7 bankruptcy is called liquidation bankruptcy because the court takes your assets, sells them, and distributes the proceeds to your unsecured creditors. Your creditors have to accept whatever the court gets from you as payment in full. Chapter 7 bankruptcy remains on your credit report for up to 10 years from the filing date. Filing has a dramatic, harmful impact on your credit score.

What is Debt Relief?

Debt relief, debt cancellation, or debt settlement is the partial or total forgiveness of debt.

How Does Debt Relief Work?

Debt relief is similar to bankruptcy in the way that it can allow you to eliminate unsecured debt for less than the amount you owe. With debt relief, a debt settlement company is usually involved to assist you with negotiating with your creditors. As a debt settlement company, CuraDebt will offer your creditors a lump sum that’s less than what you owe them and ask them to consider your account paid in full.

Bankruptcy pros and cons

Bankruptcy pros:

If you qualify for Chapter 7 bankruptcy, you can resolve your unsecured debts in as little time as just a few months.
Creditors cannot opt out; they must accept the court’s rulings.
You can get out of all or some of your unsecured debt.
Forgiven amounts are usually not taxable.
Creditors have to stop trying to collect on your debts after you file.

Bankruptcy cons:

Bankruptcy is public. You cannot protect your privacy when you file. Anyone is able to find out that you have filed for bankruptcy.
Filing for bankruptcy gives control to a judge or trustee. This person can take your non-exempt assets or your discretionary income, and it’s not negotiable.
Chapter 13 bankruptcy can take up to five years, and you could end up paying everything you owe.
Bankruptcy usually has a greater negative effect on credit scores than debt settlement.
Bankruptcy can make you ineligible for most mortgages and some jobs for years.

Debt relief pros and cons

Debt relief pros:

Debt relief is private. No one ever needs to know about your debt problems.
You remain in control. You only settle when the offer is acceptable to you.
You protect your assets. No one can force you to surrender anything or pay more than you want into a plan.
Debt relief does less harm to credit scores than bankruptcy, and you usually recover sooner.
Debt relief can result in substantial debt reduction.

Debt relief cons:

Creditors may contact you. As a client of ours, we will review methods to resolve this. In a few of our cases, we have experienced creditors having to pay fines to our clients for illegal collection actions.
Negotiated amounts vary based on various factors, including your hardship, age of debts, funds available, and type of creditor.