Bankruptcy — a Safer Way to Reduce Debt
Why Bankruptcy Might Be a Better Option Than Debt Settlement
"Debt settlement" and "debt reduction" services may seem less extreme and more cost effective than bankruptcy, and may appear to be better for your credit rating. Many people, though, are surprised to learn that, in most instances, bankruptcy is a safer way to reduce debt when compared to debt reduction companies. Bankruptcy also usually results in better protection for existing assets. Why?
- The money that debtors pay to debt settlement companies can instead be used to reduce debt when bankruptcy is pursued.
- When a debt settlement company reduces your debt, the creditor will likely issue a 1099-C form to the IRS. This form details the money that the debt settlement saved the debtor, which is considered taxable income by the IRS. When debt is reduced through bankruptcy, discharged debt is not considered taxable income.
With Bankruptcy, Money Saved Is Money in Your Pocket.
Debt settlement services rely largely on the negotiating skills of the business and on the willingness of creditors to lessen debt. Chapter 7 and Chapter 13 bankruptcy put the power in your hands; creditors must abide by bankruptcy laws and by the court's decrees regarding debt reduction.
Once debt is discharged through bankruptcy, the money you saved doesn't come back to "haunt you" by appearing as earned income. The same holds true regarding loan modifications and short sales: Money saved through negotiations can be counted against you at tax time as income. With bankruptcy, though, once you are free of discharged debt, you stay free of it. For more information, contact us at our Beaumont, Corona, Riverside, San Bernardino, Chino, Orange, Rancho Cucamonga or Palm Springs office.
Contact Us
The Orange consumer bankruptcy attorneys at Sobti Law Group offer free consultations, are available for Saturday appointments by request, and speak English and Spanish as well as Armenian, Russian, Arabic, Persian, Hindi and Punjabi. To contact a lawyer at the Orange law firm of Sobti Law Group or U.S. Law Center, call 888-627-8013.
