My question is about choosing which way is least damaging to overall money and credit, filing bankruptcy or settling debt with creditors?
We have spoken to a lawyer about bankruptcy but the courts are backed up for 3 months, wow. So between tips from the show and help from my lawyer I called a couple of creditors last night and they were eager to offer a settlement.
Now, I didn’t realize that the difference in the settlement would be considered income on our tax return , so I politely told them I would check back with them about the amount they were offering. Nothing scares me more than owing the IRS.
Bankruptcy will ruin our score for 10 years, but will wipe out most debt, saving us thousands.
Debt settlement will tarnish our score but will cost us thousands and the backlash of the IRS.
My husband has been out of work on and off for over two years, and I work part time. We are self employed , our 6 month saving acct is gone, and our small IRA is now tiny. Our retirement investment a condo on the ocean is worth less than what we owe now, as is our primary home we bought in 2006.
We do qualify for bankruptcy, but we also have potential help to borrow if we can settle reasonably with creditors.
Hope this makes sense, my head is spinning.
Thanks again for all the advice. -Faye G., MD
I recommend that consumers use bankruptcy as an absolute last resort because of the long-term damage it does to your credit. You may find yourself unable to get credit when you really need it with a bankruptcy on your record.
The option you choose also really depends on how much you owe. I have seen consumers file bankruptcy over a relatively small amount of money. Instead, they may have been able to pay the money back over two or three years, causing less damage to the credit history than a bankruptcy.
I recommend that you pull together all the numbers: How much you owe, how much you might be able to settle for, and how much will be taxed. Have a tax professional figure out what your tax bill will be. Then consider options for employment that might help you pay down that debt. If it still seems unmanageable, then you should take a more serious look at bankruptcy.