Some people in Texas may not realize that there are consequences to choosing debt settlement over bankruptcy. For example, they might not know there will be tax to pay on the forgiven debt. They might also think they will lose all their possessions in a bankruptcy, but laws protect against this. Furthermore, debt settlement still has a significant negative effect on a person's credit score.
Consumers should understand that debt settlement may take years, during which the debtor risks being sued. Additionally, debt settlement is often not a good financial deal. A person may end up settling for up to 90 percent of the original debt once interest and penalties, IRS taxes and the debt settlement fee are taken into account. Debt settlement agencies are not good sources of information regarding bankruptcy since they want to encourage settlement and might mislead consumers.
However, debt settlement may be a good option for people who are unable to file for bankruptcy or do not qualify for a Chapter 7 and do not want to file a Chapter 13. With a Chapter 13 bankruptcy, a person works out a payment plan, so a debt settlement and Chapter 13 bankruptcy may take a similar amount of time.
However, filing for a Chapter 7 or Chapter 13 bankruptcy puts an immediate stop to creditor harassment and any other creditor actions. Filing for a Chapter 13 bankruptcy can stop foreclosure and allow a person to keep a home. People may think that they won't be able to rebuild credit after a bankruptcy, but this is not the case. It is possible to start small with a secured credit card and build from there. A person struggling with debt might want to discuss options with an attorney.