Is Chapter 7 bankruptcy better for my bank account than credit counseling or debt settlement or debt relief programs?

Yes, in the vast majority of cases. Let’s examine how debt settlement programs have generally worked. For these credit or debt programs, you are first required to pay a fee. This is generally thousands of dollars. They don’t tell you what the fee is until you are ready to sign up. But they advertise that it is between 15-25% of your debt amount. Well, 15% of $20,000 is $3000, and that is likely what you are going to pay for a Chapter 7 bankruptcy attorney anyway. Besides that initial percentage fee, these programs also charge you a monthly fee.

Here’s what those programs do: they save your money for you. Once you have enough, they go and try to settle your debts for you. This is something you can do for yourself, without paying thousands of dollars to a “program.”

In addition, once one debt is settled, you still have to figure out how to pay all of your other debts. These programs advertise that the programs take 2-4 years. Your creditors may have filed lawsuits by then. By contrast, a Chapter 7 is over within about 90 days, and your credit improves soon after that. Also, your creditors cannot get judgments against while you undergo your Chapter 7.

Finally, once a creditor settles a debt, they are going to send you an IRS Form 1099 for “discharge of indebtedness.” So, guess what? Now, you owe Uncle Sam and the IRS income taxes for the debt settlement. Admittedly, this income tax may not hit you as hard, but the surprise to your tax refund could be devastating. In addition, you could end up owing taxes, and the IRS is a much more formidable foe in court than your credit card company. As you can see, filing a Chapter 7 bankruptcy is much easier on your pocketbook and bank account, even though the upfront fees are going to be similar.