You may feel as if debt settlement is a preferable alternative to bankruptcy. However, Michigan companies that provide debt settlement services may not necessarily be able to convince your creditors to accept less than what they are owed. Furthermore, you may have to pay taxes on any amount that is forgiven, and engaging in debt settlement could still result in a significant drop in your credit score.
A debt settlement company may be able to convince a creditor to accept half of what you currently owe in a lump sum payment to close your account. However, there is a strong possibility that you owe more today than you did when the account was first opened. This is because penalties, fees and interest could cause a balance to inflate quickly. Therefore, it is possible that even the settlement amount is equal to or greater than the original amount that you owed.
It can take up to four years for a debt relief company to negotiate new payment terms on your behalf. In the meantime, you are encouraged to stop making payments and to put money into a savings account. By doing this, your credit score will likely drop, and there is a chance that creditors will file a lawsuit in an effort to collect what they are owed.
While there are negative consequences to filing for bankruptcy, it may still be a better option that pursuing a debt settlement. In some cases, you may be able to file for bankruptcy without losing any of your property. Additionally, a Chapter 7 case can be opened and closed in about six months, which means that you can start rebuilding your credit much faster. If you are interested in filing for Chapter 7, it may be a good idea to consult with an attorney who can explain the differences between bankruptcy and a debt settlement as well as the potential benefits of filing.