Debt Settlement Plan vs Filing Bankruptcy
Debtors can still be vulnerable to legal action and collection activity, even while making payments into a debt settlement program. The debt settlement companies are not typically attorneys. In some states, they have a local attorney that works for them but does not represent you in court. Creditors can still make collection calls – in fact, those calls often increase. Debtors are responsible for sending letters to creditors citing Federal law in order to stop the collection calls.
In a bankruptcy, debtors may be able to discharge most or all of their debts. Depending on the type of bankruptcy you may be able to get a discharge in a short time with attorney fees paid upfront or through a payment plan made to a trustee for three to five years that would not require any fees upfront. In a three to five year case, the Trustee pays the creditors according to the plan and legal fees are paid through the plan. Some debts such as student loans and recent tax obligations might not be discharged.
In this type of bankruptcy, the debtor will propose a plan to the court. After review, if the plan meets all the requirements set by bankruptcy laws, a Judge will issue an order approving the plan (normally within a few months of the case being filed). The debtor will make monthly payments to the Trustee. The payments are largely dependent on a budget that is done with your attorney. In some cases, a portion of the payments may be paid to some creditors but not others – and in most cases, this results in actually paying pennies on the dollar on the total debt.
Chapter 7 is different than Chapter 13 in that the debtor will usually receive a discharge within six months of filing. The fees to the attorney are due before the case is filed because the lawyer is dischargeable in the case. The discharge wipes out credit cards, personal loans, and medical bills.
- The debtor is no longer obligated to communicate with creditors.
- All communication with creditors is done through the attorney.
- The court order stops all collection activities, including lawsuits, collection calls, and letters.
- Any legal proceedings are controlled and handled by the attorney.
- There are NO tax consequences for discharged debt.
If you are still interested in a debt settlement plan, you should do your homework. The Federal Trade Commission and Consumer Financial Protection Bureau have excellent resources on these types of programs. You should also consider reviewing the State Bank Commissioner of Kansas. In Kansas to provide any kind of debt counseling services, you need to be licensed and the State Bank Commissioner has an easily accessible online system to check and see if an agency is currently licensed.
Bankruptcy is a better option than debt settlement for most people. In our office cases are unique and carefully planned around the debtor’s particular circumstances. We suggest that you call an experienced bankruptcy attorney with your questions about how bankruptcy might work for you.
The lawyers at Coons & Crump are supportive, competent, and reliable. We want you to experience the relief that bankruptcy can provide. Contact our office to schedule a free, confidential consultation. With convenient office locations in Lawrence, Topeka and Overland Park, we can represent anyone who resides in the State of Kansas.
785-856-8720 (Lawrence) 785-783-2360 (Topeka) 913-353-4044 (Overland Park)