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Bankruptcy vs. Debt Settlement

Chapter 7 permanently eliminates most types of debt without any repayment.

Chapter 13 allows repayment of unsecured creditors, mortgage-loan arrears, taxes, medical bills, car loans, and other debt through a court-enforced repayment plan.

Must save money through third-party escrow account with fees in addition to upfront costs before settlement company attempts to settle credit card debts only. Companies do not deal with auto repossessions, foreclosure debt, taxes, payday loans, etc.

Filing of bankruptcy initiates an automatic stay." All creditors must cease all collection calls, pending lawsuits, harassment, garnishments, levies, etc. or face severe sanctions for violating automatic stay protections provided by law.

Debt-settlement companies do not eliminate harassment (e.g., collection calls, lawsuits, continued negative credit reporting, garnishments, levies, etc.) from non-participating creditors.

Chapter 7 (no repayment) takes approximately five months from date of filing to receipt of discharge.

Chapter 13 repayment plans range from three to five years. The repayment plan cannot exceed five years.

Debt settlement depends on how much money an individual can place into a third-party account and whether the creditor is willing to settle.

Bankruptcy attorneys are licensed by the California State Bar. Complaints can be filed with the Bar through www.calbar.org. There is a physical office you can visit for personal counseling and representation.

Many debt-settlement companies are based out of state or are Internet-based, making it difficult to contact, cancel the program, sue for damages, or obtain a refund.
Bankruptcy is an established system of federal law, procedures, and regulations created to protect you, the debtor.

The debt-settlement industry is completely unregulated, with no one to protect you at all.
Bankruptcy can eliminate federal and state tax debt in certain cases

Credit counseling/debt consolidation does not eliminate or deal with taxes.
Bankruptcy does not result in Cancellation of Debt Income meaning that you will not receive a 1099-C form from the creditor for the debts eliminated in bankruptcy.

Debt settlements leave you with a hefty tax burden for Cancellation of Debt.