Debt Settlement or Bankruptcy: Which is Right for Me?

This video features David Shuster, a Bankruptcy attorney based in Texas.

Video Transcript:

David Shuster:

You end up paying back 75% to 95% of the debt. You just end up paying back more.

Judy Maggio:

How do you know if you need debt settlement or maybe bankruptcy, and what's the difference? We'll find out the answers to those questions and much more when we ask the lawyer. 

Hi everyone. I'm Judy Maggio with askthelawyers.com, and my guest today is Dallas attorney David Shuster. A quick reminder before we get started, if you want to ask questions about your specific situation, go to askthelawyers.com and at the top of the page click on the “Ask a Lawyer” icon, and it will walk you through that process. 

David, thanks so much for being with us today.

David Shuster:

Yeah, thank you. Glad to be here.

Judy Maggio:

My first question is a simple one. What is the difference between debt settlement and bankruptcy?

David Shuster:

Sure, yeah. Debt settlement is just settling, just like it says. I like to say debt defense in debt settlement, so it just depends if you have a debt that you can actually defend. Sometimes you defend a debt case that's filed against you. So defending and settling debts is one way to handle things, and you're in the driver's seat along with your attorney, so you have a little bit more control over things. There is no automatic stay, so you do get those debt claim lawsuits filed.

In a bankruptcy you have an automatic stay, so you don't get any lawsuits filed; no creditor can call you or contact you, and while you are in the driver's seat still, you're subject to the rules that apply in bankruptcy about how much property can you own, how much income can you have, how much debt can you get rid of? The good news is that I handle both of these things, and so you kind of look at the bankruptcy rules and see how much you could benefit in that direction, and if you could benefit more with debt settlement, then that's where you go.

Judy Maggio:

So what are some specific situations where debt settlement would make more sense than Chapter 13 or Chapter 7?

David Shuster:

Well, debt settlement would make more sense than bankruptcy if you're going to lose a piece of property or if you just own something like a rental property. Usually people in a situation where they're trying to get rid of debt, don't have liquid cash in the bank. However, it does sometimes happen where you get an inheritance and you do have these creditors over there, and so you know you definitely need that settlement there, so you can kind of maximize your inheritance and get rid of your debt. So debt settlement makes sense over bankruptcy so you can stay in control and you don't lose any assets, and then you can deal with the creditor directly yourself rather than through bankruptcy where you might lose something and you might end up paying back all of the creditors, which you want to avoid because it just is not good for your household dollar.

Judy Maggio:

I've seen ads for debt settlement companies that do offer legal services. So are these legitimate?

David Shuster:

I'm not going to say they're all illegitimate. However, the ones that I've looked at, every time I look at those, you end up paying back 75% to 95% of the debt. You just end up paying back more, so they're going to cost you more. They sound good; they've got good marketing, good websites, good commercials, but the problem is, when you peel it back, I frequently will get contacted by people who have tried these programs and like I said, every single time, if you do the math on it, it's not good. They charge higher fees; they're not licensed attorneys, obviously. If they claim to be, like you said, legal debt settlement companies with lawyers, they'll refer out something to an attorney who may or may not have your best interests in mind if you didn't go hire this person. 

So the bottom line is, they end up costing more money. If you just have a little bit of debt, not that much, if you’ve got five different creditors, $10,000 total, then it might make sense. But if you can find a licensed attorney like myself that will look at all of your options and someone that you can come into the office with or talk to locally, that's going to be a better direction to go. It's going to save you money in the long run.

Judy Maggio:

So can you try to settle a debt yourself and do that your own way, or is it better to hire an attorney? What's the difference?

David Shuster:

You're going to be better off hiring an attorney simply because the percentage of discount on the debt to get it settled is going to be higher. It may be similar sometimes, like if you're like some of my clients that have backgrounds as debt collectors and what not. But everyone's different, and if you're not employed or something, then maybe you have a lot of time. It's going to be time consuming, and ultimately, you're not going to be any worse off by getting an attorney involved; you shouldn’t be, at least, if you do the math on paying the fees and ask the attorney what kind of percentage he or she expects to settle. You're just going to save money and you're going to save stress and time by hiring a professional to come do it. That's the bottom line.

Judy Maggio:

This has really been very helpful information. We so appreciate your time today, David.

David Shuster:

Yeah, thanks. I'm glad to be here. Thank you, Judy.

Judy Maggio:

Well, that is going to do it for this episode of Ask the Lawyers. My guest has been Dallas attorney David Shuster. Also, don't forget if you want to ask some questions about your specific situation, just go to askthelawyers.com and click the “Ask a Lawyer” button at the top of the page. It is easy and it's free. Thanks for watching today. I'm Judy Maggio with AskTheLawyers™.

Disclaimer: This video is for informational purposes only. In some states, this video may be deemed Attorney Advertising. The choice of lawyer is an important decision that should not be based solely on advertisements.

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