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With mounting debt, it can be difficult to pay back creditors and still cover basic expenses. That’s why many people choose personal bankruptcy or debt settlement programs to alleviate financial strain. To determine which option is best for you, here is a closer look at both.

Debt Settlement

If you have at least $7,500 in unsecured debt, working with a debt settlement company might be the best option. A debt settlement provider negotiates on the debtor’s behalf with creditors to bring down the outstanding balance to an amount that the debtor can pay back while retaining their assets. The company sets up a trust account where the debtor deposits monthly payments to pay back creditors.   

Honolulu-Hawaii-personal-bankruptcyAs debt must be unsecured, the settlement company can’t assist with loans backed by lenders, such as auto and mortgage debt. Debt settlement takes two to four years to complete and will stay on a person’s credit report for seven years, resulting in a slight dip in their score. 

Personal Bankruptcy

Whereas debt settlement is a private process, personal bankruptcy is governed by the court system. Generally, an attorney can help a debtor file the petition and additional paperwork to start the process.

Chapter 7

If you have a lot of debt and assets a creditor can take back, such as a house or car, consider Chapter 7 bankruptcy. The trustee assigned to the case catalogs and liquidates nonexempt assets, including vacation homes, second cars, heirlooms, and stocks. The proceeds go toward paying back creditors.

Chapter 7 bankruptcy stays on a credit report for 10 years and can have a temporary negative impact on the score. The process is handled relatively quickly, taking three to six months to complete. You must pass a means test to qualify for this type of personal bankruptcy. 

Chapter 13

Chapter 13 bankruptcy is an option for those who don’t pass the means test and have less than $1,184,200 in secured debts and $394,725 in unsecured debts. It’s also for people who need to discharge debts accumulated to pay back tax obligations and debts due to divorce.

Other debts are paid back in a repayment plan. The process takes three to five years to complete and remains on a credit report for seven years. The applicant’s credit score will remain low for a while.

 

To delve into your debt relief options with a professional, contact Donald L. Spafford, Jr., Attorney at Law, in Honolulu, HI. Boasting over 30 years of experience, the counselor helps Oahu clients with personal bankruptcy cases, so they can start rebuilding their credit and quality of life. Learn more about the lawyer’s qualifications online, or call (808) 532-6300 to schedule a free consultation. 

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