The Wink Law Firm’s Team of Debt Settlement Attorneys Share Their Perspective
When calls and emails come into our Denver office, our bankruptcy and debt settlement attorneys hear a very common question: “I’ve been doing some research online. What makes more sense: bankruptcy or debt consolidation?”
We generally take that to mean bankruptcy or debt settlement, but many people confuse debt consolidation with debt settlement. Debt consolidation is taking out a loan to pay other loans. Debt settlement is getting out of debt for a fraction of what you owe by going into default and then negotiating an agreement to settle the debt for less. The reason so many people get settlement and consolidation confused is because many debt settlement companies are dishonest about what they do. Rather than tell people they have to go into default and might get sued, which is required for settlement, they mislead people into thinking this is part of a program that is pre-approved by creditors. This program is not approved by the creditors and settlement companies are deliberately telling folks what they want to hear instead of the truth.
Still, asking about bankruptcy versus debt settlement is a great question, and shows you’ve taken the initiative to find out about the ways to achieve relief from your financial struggles. When you bring this question to our bankruptcy and debt settlement lawyers during a free consultation, we listen carefully to your story and ask questions with empathy and respect for your situation. Then, we provide your answer – a solution to help you find the freedom from debt that you’re seeking. That solution always has two characteristics: it is in your best interest, and it is the most cost-effective solution to put you on a better path moving forward.
In this article, our lawyers for debt settlement and bankruptcy clearly articulate the differences between bankruptcy and debt settlement. This will help you understand why we make certain recommendations during our free consultations with clients.
We Look at Each Bankruptcy and Debt-Settlement Case Individually
Of course, every situation is different. But that hasn’t stopped some debt settlement lawyers from seeing settlement as a one-size-fits-all solution. At The Wink Law Firm, we take a unique and customized approach to ensure you’re getting a cost-effective solution. Our solutions always make the most sense for you, your family, and your circumstances. We can do this because we are a full-service debt relief law firm which can represent folks in bankruptcy, debt settlement, and even in tax resolution with the IRS.
We begin our free consultations with listening. Many of our clients aren’t sure what to do with their mounting financial troubles, and they just want to be heard. Our bankruptcy and debt settlement attorneys will listen carefully to your story.
Then, we start asking questions about your debt and what can be done to get you the help you need. One of the first questions we ask is about income. If you make under a certain amount of money, Chapter 7 bankruptcy is likely the most cost-effective solution for you.
When Bankruptcy Might Be a Better Solution Than Debt Settlement
The income threshold for an individual filing for Chapter 7 bankruptcy in Colorado is based on the median income. This figure is updated twice per year and, as of April 2023, it is $75,710. For a family of two, it’s $98,365. And this median income threshold goes up with the more people in your household. If you make under the applicable amount for your household size, bankruptcy law essentially assumes you cannot afford to repay debt based on your income and you can potentially have all your unsecured debt discharged in Chapter 7 bankruptcy. What is unsecured debt? Think credit cards, medical bills, payday loans, remaining debt after auto repossession, broken leases, and more. It is the opposite of secured debt, which includes debt where the creditor can take something if you don’t pay (e.g., your mortgage or auto loan).
At this point, our clients typically ask about debt settlement. They wonder whether debt settlement is a better option. When you decide that debt settlement is your best debt solution, The Wink Law Firm explains that we can typically help you settle with your creditors for about half of what you owe. The rest will need to be repaid, ideally within 24 months of settling. Otherwise, once you get past that two-year mark, there’s potential that a creditor will sue you for what you owe.
For many individuals who make under $75,710 and have $10,000 in unsecured debt, paying half of that money – $5,000 – could be a reasonable solution, if you have the money to repay. If you don’t, bankruptcy makes much more sense. You could potentially have all that debt wiped out immediately with Chapter 7 bankruptcy and pay little more than legal fees ($2,000 of fees and costs in base cases). Then, you won’t continue to struggle financially for another two years while you try to repay your creditors after choosing debt settlement.
Addressing the Misleading Stigma Surrounding Bankruptcy
If you can’t repay immediately in debt settlement, bankruptcy could help you get out of debt for a small fraction of what you owe. However, many clients wonder, “Doesn’t bankruptcy look bad? Will there be a stigma when they try to get an auto loan or mortgage later in life? Are there penalties for bankruptcy?”
Our team explains, calmly and confidently, that there is no true stigma attached to bankruptcy. Much like debt settlement companies creating confusion about the difference between settlement and consolidation, there is a lot of misinformation about the impact of bankruptcy on your credit. It is vastly overstated!
However, we completely understand our clients’ feelings. Sometimes, the pain and worry we feel about our financial struggles makes us feel like there should be some harsh penalty down the road to punish us. We sympathize with that perspective. But the good news is – it’s just not true.
We explain to our customers that any worries about the “stigma of bankruptcy” are fed by misinformation that plays on our feelings of fear about what will come next. In fact, bankruptcy is a powerful solution that some Colorado residents can take advantage of. If you have significant unsecured debt, our lawyers for debt settlement and bankruptcy can offer a legal strategy to wipe it away. You’ll only end up paying our affordable legal and filing fees and be eligible for a 700 credit score and mortgage in a couple of years.
Bankruptcy, in fact, is an incredible bargain and source of relief, not something to be feared.
When Does Debt Settlement Make Sense? And What About Chapter 13?
In some cases, settling your debt with our team of debt settlement attorneys just might be the best alternative. Chapter 7 is property-based bankruptcy whereby you keep certain property, called exempt property. In Colorado, exempt property includes $250,000 of home equity ($350,000 if you or a dependent is over 59 years old or disabled), $15,000 of vehicle equity in up to two vehicles, and unlimited amounts in a pension or retirement account. If you have significant property that is not exempt (e.g., cryptocurrency), then Chapter 7 is likely not best for you because the bankruptcy trustee will take this property. Similarly, if you make over the income threshold for an individual ($75,710), you likely won’t qualify for Chapter 7 bankruptcy. Fortunately, you have two other solutions at your disposal: Chapter 13 bankruptcy and debt settlement.
Bankruptcy may still be an effective solution. In Chapter 13, you are required to make payments for 3-5 years based on your income and expenses, unprotected property, or amount of certain so-called priority debts (e.g., taxes or child support arrears). Our team of experts at The Wink Law Firm can help you determine how much you’d be required to pay into a Chapter 13 bankruptcy plan. We can also determine your cost of settling debt outside of bankruptcy, which will require you to access cash for settlements within 24 months or so.
We typically advise our clients to set aside pre-conceived notions of bankruptcy and settlement and pursue the most cost-effective solution for their situation. This also means considering what is practical. You may wish to avoid bankruptcy, but you cannot afford settlement. If you pursue this instinct, you’ll likely waste time and money trying to settle debt only to end up being sued with your wages garnished. In that case, you will likely end up in bankruptcy anyway.
Debt settlement is only useful in the case of unsecured debt and only if you can access the funds to settle within 24 months or so (and sooner is better). If you are dealing with secured debt, such as mortgage or car payments, Chapter 13 bankruptcy likely provides better solutions to help you manage these debts on a three-to-five-year payment plan.
Importantly, know that The Wink Law Firm’s team of lawyers for debt settlement and bankruptcy can help you navigate the uncertainty that comes with debt relief. We can develop a custom strategy that will benefit you the most and set you up for success in the future.
Share Your Story with Us and Find Out Whether Bankruptcy or Debt Settlement Can Help
Essentially, deciding between bankruptcy and debt settlement comes down to this: if you don’t make too much money or own too much property, bankruptcy is typically more cost effective.
Of course, there are plenty of situations where the nuances of your financial situation make the decision to go with one solution over another require deeper consideration. Our lawyers for debt settlement and bankruptcy can handle that too.
In any set of circumstances, a free consultation is the key. When you have understanding lawyers for debt settlement and bankruptcy on your side, they will help you clear away the misunderstandings and fears about debt relief. The Wink Law Firm can point out exactly what you should do to get financially healthy again.
Schedule your free consultation with our attorneys for debt settlement and bankruptcy today by sending us a message online or calling us at (720) 523-0620. We look forward to helping you find the best way forward.