If I have high debt, is it better to file for aChapter 13 or try to settle?

UPDATED: Jan 19, 2011

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If I have high debt, is it better to file for aChapter 13 or try to settle?

Over $180,000 in debt due to 25 years of keeping a family business going and living off charge cards. The bottom has fallen out of my finances and my options are a Chapter 13 bankruptcy or settlements. I have a relative who will lend me $25,000 to try to do settlements. Most all the charge cards have charged off. A few have already indicated they would settle for 10-15%. My husband would much rather do settlements than the bankruptcy. Some calls are from debt collectors that I think have bought the original debt. If I have the option, will settlements be a less public and better way to go?

Asked on January 19, 2011 under Bankruptcy Law, Ohio


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 12 years ago | Contributor

All things being equal, debt settlement for 10-15% of the outstanding debt is somewhat better than bankruptcy; it will still show negatively on your credit report, but not for as many years as bankruptcy and probably not quite as negatively. It also lets you focus on only those debts you want to settle, rather than "globally" affecting your finances. And it keeps bankruptcy in reserve as an option for the future. All that said, (1) make sure you get everything in writing--if there's no written agreement to settle, creditors can take the money and still come after you; (2) if you try to force the issue by withholding payment until you get agreemen to settle, you'll be in default; and (3) since settlement is voluntary, even if you settle most debts, a single large creditor could hold out and potentially force you to file bankruptcy anyway.

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