Chapter 13 Vs. Debt Settlement

Chapter 13 bankruptcy and debt settlement programs are strategies for reducing consumer debt. Consumers generally, but not always, seek an attorney to help with Chapter 13, while debt settlement can be accomplished by the consumer or with the help of a firm.

Chapter 13

Chapter 13 bankruptcy allows consumers to reorganize their debts under the supervision of the courts. A plan is established to repay all or a portion of the debts within three to five years.

Debt Settlement

Credit card companies and other creditors will often seek to settle a seriously delinquent account. This means the companies will settle for, or accept, less than what is actually owed.

Affect On Credit

Chapter 13 bankruptcy and debt settlement will both negatively impact credit scores until a good credit history can be re-established.

Costs For Chapter 13

For Chapter 13, the courts charge a $235 case filing fee and a $39 miscellaneous fee. Those fees were as of January 2010. In addition to those fees, expect to pay an additional several thousand dollars in attorney fees over the course of three to five years.

Costs For Debt Settlement

A savvy consumer can accomplish debt settlement alone, or retain a company that will charge a fee that is generally equal to about 25 percent of the money saved through settlement.

Other Considerations

You may have to pay federal income taxes on any debt reduced through a settlement program.

References

• U.S. Courts: Chapter 13
• Money Central: When Debt Settlement Makes Sense

Resources

• Debt Consolidation Care: Forums
• Money Central: When Debt Settlement Makes Sense