When you are drowning in debt, it is easy to feel overwhelmed by the choices available for financial relief. In this blog, we delve into the key differences between debt settlement and bankruptcy. Please continue reading as we explore what you should know about these matters and how our determined Gillette Bankruptcy Lawyers can assist you.
What’s the Difference Between Debt Settlement and Bankruptcy in WY?
In Wyoming, two of the most common options for those buried in debt are debt settlement and bankruptcy. Although both aim to alleviate debt burdens in Wyoming, their methods and repercussions differ considerably.
First, debt settlement is a process in which a debtor negotiates with a creditor to pay a reduced amount of their total debt, usually in a lump sum, in exchange for the creditor waiving the remaining balance and fees. Through this structured deal, you cease all payments and instead deposit money into an account until an offer can be made and accepted. After the creditor agrees, the lump sum will clear the remaining debt.
It should be noted that creditors are not obligated to accept a settlement and may pursue legal action. During negotiations, interest and fees can also accumulate, negatively affecting your credit score. Settled debts are noted on your credit report for several years, potentially hindering future borrowing.
Unlike debt settlement, bankruptcy is a formal legal process that is overseen by the federal court. Bankruptcy involves liquidating assets to pay debts or creating a repayment plan. Most individuals file under Chapter 7 or Chapter 13.
Eligibility for Chapter 7 hinges upon a means test, which compares your income to Wyoming’s median household income. Chapter 13 eligibility, on the other hand, requires you to have a regular income stream to make plan payments, spanning three to five years. Bankruptcy will remain on your credit report for 7 to 10 years. However, it can offer immediate protection from creditors through the automatic stay.
Can I File for Bankruptcy if I’m in a Debt Relief Program?
You may have begun the debt settlement process in Wyoming, hoping to negotiate a reduced balance with creditors, only to discover it isn’t working as well as you anticipated. Creditors may not be cooperating, late fees and interest may be mounting, or lawsuits may have already been initiated. Regardless of the reason, you might consider switching from debt settlement to bankruptcy.
Even if you have already attempted debt settlement, you are generally free to file for Chapter 7 or Chapter 13. Once you file, all collection actions will halt courtesy of the automatic stay. This means creditors must stop lawsuits, wage garnishments, foreclosures, and harassing communications, providing you with breathing room to reorganize your finances. Creditors must adhere to the bankruptcy court’s orders, unlike in a settlement. It’s important to note that if you are already paying fees to a settlement company, those payments are usually non-refundable and won’t reduce bankruptcy debt.
For more information, please don’t hesitate to contact an attorney at 307 Bankruptcy. Our legal team is prepared to help you choose the right solution given your unique circumstances.
