September 28, 2020
Our Managing Attorney, Matt Herron, had the opportunity to discuss his thoughts on financial distress due to the COVID P...Read More >
As we learned in Part 1 of this blog series, bankruptcy is a powerful financial strategy that has many tools and protections. To continue our analysis of bankruptcy vs. debt consolidation, debt settlement and credit counseling we will discuss two other significant reasons bankruptcy is the best option.
There Are No Tax Consequences from Bankruptcy
When you file for bankruptcy, you will not have any negative tax consequences. Bankruptcy can actually provide you with a tax benefit since legal fees are tax deductible. The process can even eliminate your taxes depending on your eligibility and the timing of when you file for bankruptcy. If you plan accordingly and the taxes are old enough, when you file you may be eligible for a discharge. A discharge in bankruptcy is not a taxable event.
On the other hand, with debt consolidation, debt settlement and credit counseling, there is tax liability. This applies if you settle a debt and the creditor decides to use your debt as a loss. In this scenario, you are responsible to claim any portion of the debt your creditor has forgiven as income to you. This is often a hidden cost of debt consolidation, debt settlement and credit counseling.
Bankruptcy Provides You a Clean Slate and an Opportunity at Credit Recovery
Filing for bankruptcy gives you the chance to mentally regroup and come up with a strategic approach to get back on track. While the process is still difficult, it is much more peaceful without creditors harassing you to pay your debt.
Once you complete your bankruptcy filing, all previous debts are discharged and you are presented with offers for new credit. This will give you a clean financial slate and a fresh start. Wise utilization of new credit can rebuild your financial standing. Our clients are amazed that in many cases after 2-3 years they can qualify for regular interest rates and/or a mortgage.
The same cannot be said about debt consolidation, debt settlement and credit counseling. They do not provide you with a fresh start and they won’t help you to get on the road to financial freedom. They lack certainty or finality and do not provide you with an opportunity to rebuild your credit.
In conclusion, the obvious and best option is bankruptcy. While it may not be the right choice for everyone, it is certainly the best choice in comparison with debt consolidation, debt settlement and credit counseling.
The Debt Doctors are standing by to assist you with this process. Before even considering contacting a debt consolidation or debt settlement company, we urge you to call the Debt Doctors—412-395-6001 or email us at email@example.com.
Our clients will tell you—the Debt Doctors are the most effective prescription “for life after debt!”