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The differences between debt relief and bankruptcy

Debt relief and bankruptcy are two options for financial help if you are struggling with significant debt. Debt relief, sometimes called debt settlement, is a strategic negotiation process with creditors to pay less than what you owe. Chapter 7 bankruptcy wipes out your debt and chapter 13 bankruptcy consolidates your debt into a more affordable repayment plan.

Trying to start over financially can be a stressful and confusing process. How can you make the right decision? Read below for the benefits of debt relief and bankruptcy with information from the Federal Trade Commission.

Debt relief

If you pursue debt relief, you will make a lower payment offer to your creditor. This is often best accomplished when you have a representative helping you, such as a debt relief attorney. For example, if you owe $10,000, you might offer your creditor a one-time payment of $5,000. Debt settlement is a useful short-term solution, but keep in mind you will have to go through the process with each individual creditor. 

Chapter 7 bankruptcy


Declaring bankruptcy through chapter 7 means most of your debts will be canceled. The process requires you to sell non-exempt assets. Exempt property generally includes household furniture, occupation-related equipment and certain vehicles. Your non-exempt assets may be used to satisfy your creditors or sold by a trustee.

Chapter 13 bankruptcy

Filing for Chapter 13 bankruptcy means you are able to keep more property, such as your home or car. You are able to get a court-approved repayment plan to pay off your remaining debt within three to five years. Once your payments are complete, all your debt will be discharged.

As you can tell, there are various benefits to each option. Keep in mind there are certain requirements for each type of bankruptcy, and your decision will depend on your unique circumstances. Talk to a debt relief attorney about your situation for more assistance with making a financial restart.

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