Most of my clients have done everything they can to avoid filing for bankruptcy. They have worked overtime, sold property, and in many cases, have tried one of those "Debt Relief" groups you see on TV. This has led me to feel that we need to dispel certain confusions between bankruptcy and debt relief.
Most "Debt Relief" or "Debt Consolidation" companies work similarly. First, they provide a client with estimates of how much the client can save by using their service. Once the client hires them, they advise the client to stop making payments on their credit card debt. Instead, the client will make payments to an account set up by the "Debt Relief" company. The debt relief company will take a fee off the top. Often times there is an additional monthly management fee as well.
As the client pays into the accounts and their credit cards go later and later, the debt relief company will try to settle the outstanding balances with the money left in the account. At the end of an estimated term, usually about 5 years, the debts will all be settled and the client will be debt free.
This can work for some people. However most people will not complete the plan. Also, there are a few things the debt relief company does not tell you. For instance, some of the creditors may not be willing to enter any sort of agreement with you. Instead you will be sued. Another surprise people often get is that you will receive a 1099 on the forgiven debt. That means that even though the debt was written off by the creditor, you will have to pay taxes on the written off portion as if it was income.
Bankruptcy is a much more effective at eliminating debts that any Debt Relief or Debt Consolidation company. Bankruptcy is a legal process so creditors do not have control of the situation. Bankruptcy also does not result in any kind of tax issues. Additionally, a Chapter 7 bankruptcy can be over in about 110 days. That is not to say bankruptcy is the best for everyone. If you have a lot of non-homestead land or more than $15000 in a bank account Bankruptcy may not be the best option for you.
Overall, if you are considering some sort of debt relief program, you owe it to yourself to at least consider bankruptcy. My office provides a free consultation to review your options. Give me a call at 817-494-3344.