Comparing Debt Settlement vs. Bankruptcy in Illinois

Date Posted: June 17, 2024
By: Maggie Marques
Time to start comparing debt settlement vs. bankruptcy in Illinois. This is important especially if you are facing an overwhelming amount of debt. Both are kinds of debt relief, but there are differences between the two. Understanding their differences is important before you decide which of the two relief programs is best for you.

Debt settlement

Debt settlement gives you the opportunity to negotiate with your creditors. Part of your conversation will be negotiating for a reduction in the total debt. You will also discuss the terms of your payment. Here are some of the key aspect of debt settlement in Illinois that can help you gauge if this is the better route for you:

  • Negotiation with creditors.  To reach a mutual agreement, you need to face your creditors and negotiate with them terms for your repayment. Usually the repayment is a reduced amount compared to what you originally owe. This is is preferred by debtors as they will still get their money back, or at least most of it, as compared to bankruptcy. Debt settlement also paves the way for you to repay your debts without going through the bankruptcy court.
  • Debt burden reduction. Youc an start working on your way to becoming debt-free by settling debts for less that full amount owed. It is a good option for people who has disposable income but not much extra to keep up with their monthly debt repayment terms.
  • Lesser negative impact on credit score. Debt settlement will still have a negative impact on one’s credit score but it will not be a severe unlike filing for bankruptcy.  Future lenders may view debt settlement favorably compared to bankruptcy and may consider granting you a loan. Bear in mind though that even if they give you a loan, the interest rates may be a tad higher than those with high credit scores.

Bankruptcy

 

On the other hand, bankruptcy gives you a way out to legally eliminate your debts.  This will have a more severe impact on your credit history and score so proceed with caution.  Here are the considerations

  • Legal process.  Bankruptcy is a process that is governed by federal law. This legal process gives those who are heavily in debt and can’t repay to have their debts erased or restructured. Every step will be done under the supervision of a bankruptcy court until your financial obligations are resolved.
  • Bankruptcy types. In Illinois, there are two kinds of bankruptcy – Chapter 7 or Chapter 13. Each of these types has a specific criteria for eligibility and it has different implications for the debtor. So what’s the difference?
    • Chapter 7. This is the usual type of bankruptcy that individuals apply for.  The individual’s assest are liquidated. The amount will be used to pay off the debts.
    • Chapter 13. This type  allows you the creation of a repayment plan to settle debts within a specific timeline. This is a good option if you want to keep your assets while restructuring your debt.
  • New beginnings. Bankruptcy offers individuals in unsurmountable debt a new beginning. It will take some time before this will be written of the credit history but it is a way to start afresh – a legal way to restructure or erase debts and regain financial stability. It is not an easy road to take but definitely an opportunity for a fresh start.

Comparing Debt Settlement vs. Bankruptcy Considerations

When deciding if you are going to go down the route of debt settlement or bankruptcy, it is important to check your financial goals. What are your long term objectives? Honestly assess if you want to eliminate your debt entirely and start fresh, or keep your assets and opt for restructuring your debts for manageable repayment schemes.

Another importnat factor is the amount of debt.  This will play a big role in your decision making as to which option is best for you. If you are moderately in debt and you think it can still be negotiated with your creditors, a better option would be applying for debt settlement. But if your debt is overwhelming you, then it may be necessary to apply for bankruptcy. Talking with a financial expert would be best as they can help you with the possible options you can consider.

As you gauge your repayment capacity, it will help you decide between the two options – debt settlement or bankruptcy. Consider your income vs. expenses, and see which of the two is suitable with your present repayment capacity. As always, consulting with financial advisers can help you the best route to take for your debt relief.

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