June 18th, 2022
Posted By
Matthew Wegner

Our office is often hired to help people with debt settlement services. There are several reasons why people may prefer Debt Settlement to Bankruptcy.

We use debt settlement as an alternative to Chapter 13 bankruptcy when the client’s primary issue is unsecured debt. A Chapter 13 bankruptcy is a powerful tool but it is not always the best choice. If a client is earning more than median income, they could end up paying 100% of the unsecured debt. You can find the median income number at the Department of Justice Website. In addition to the repayment of unsecured debt, there are attorney fees and a trustee fee that will have to be paid as well. Depending on the amount of debt this could easily be more than $8000 in various fees associated with the Chapter 13 Bankruptcy. A Chapter 13 bankruptcy usually runs for 5 years.

The Debt settlement process is much different. We will be able to negotiate with the lenders or debt collectors to achieve much better savings. It is not unusual to settle debts for 45% or less, especially when dealing with a debt collector. Attorney fees for our service are contingency based upon the amount of debt that is settled. Our contingency fee rate is generally 12% of the settled debt. Debt settlement is usually done over a period of months once the settlement account is funded.

Let’s compare the outcome of a Chapter 13 bankruptcy and Debt Settlement for an individual with $40,000 of debt and $85,000 of income and no significant assets besides their home and 401k/IRA. In a Chapter 13 bankruptcy that client will pay the $40,000 of debt, $4600 in attorney fees and Court Costs, and about $4000 in fees to the trustee who serves as the middleman in a Chapter 13 bankruptcy. That bankruptcy plan would be for 5 years. The monthly payment would be $810 per month. The total out of pocket is $48600

If that client chooses debt settlement to address their unsecured debt the cost and time would be greatly reduced. If our average settlement comes in at 45%, the client would pay $18000 in settlements and $4800 in attorney fees. The total out of pocket $22,800. The client will save $25,800 compared to Chapter 13 bankruptcy and, even with attorney fees, $17200 compared to the original debt amount.

Debt settlement is not the right solution for every situation. If a client is behind on their house or car, a Chapter 13 bankruptcy may be necessary to stop foreclosure or repossession. In some cases a Chapter 13 bankruptcy may be better if immediate intervention is needed.

My office always offers a free consultation. I will meet with you and review your financial situation. Based on this meeting I can help you decide what is the best option for you. Schedule your free in person consultation today!