Bankruptcy vs. Debt Settlement

Today I had a client in my office in Brooklyn who wanted to possibly retain me for debt settlement.  I mentioned the “B” word (Bankruptcy) and the man almost lost consciousness.  After reviving him, I had a calm conversation with him about the benefits of Bankruptcy in New York as opposed to debt settlement in New York.  The man still didn’t retain me.  His fears (and I would argue they are irrational) surrounding Bankruptcy overwhelmed any of the examples I was giving him.

So lets breakdown some of the differences between Bankruptcy in New York with a fictitious client in New York City who earns 40k a year and has credit card debt of about $30k.

New York Debt Settlement:

  • 15% fee upfront for the “initiation”(much like charging you an entrance fee to your car wash and then charging you a fee to wash your car): $4500.
  • Monthly fees of of anywhere from $50-$150 a month: $600-$1800 a year for however many years you use the service.
  • Typically a 20-30% fee of whatever money they have saved you due to debt settlement.  So if they saved you $10k off of your $30k, get ready to fork over about $3000.
  • No guarantee of success with any creditor.
  • No legal representations should any of the creditors get this crazy idea of suing you when you stop paying their bills for a while.
  • Arbitration clause in your contract if you have a dispute with a Debt Settlement company (can significantly limit your rights)
  • Credit Score plummets

New York City Chapter 7 Bankruptcy (so long as you qualify for it):

  • All unsecured debts (credit cards, judgments, etc.) wiped out in full.
  • Can cost anywhere between ($1000-$2500) for the ENTIRE procedure.
  • Takes months, not years.
  • Creditors are forbidden from contacting you (i.e. harassing you) when you file for Chapter 7 Bankruptcy.
  • Legal representation throughout (except in “adversary proceedings” in some rare cases and really depends on the agreement with the attorney.)
  • Credit Score plummets

While I agree there is more to it than this, the basic and most important differences between New York Debt Settlement and New York Bankruptcy are listed above.  If you New Yorkers do some research as well on your own, you’ll find that Bankruptcy is nothing to fear.

Daniel Gershburg Esq., is a Bankruptcy & Real Estate attorney serving  clients in Brooklyn, Queens, Manhattan, Staten Island, Long Island and Westchester.  Mr. Gershburg has given lectures and presentations to both attorneys and the community at large surrounding Bankruptcy and financial advocacy in the New York City area. He is a proud member of the National Association of Consumer Advocates.   Currently he is working on his first book giving practical advice about repairing troubled credit and how to improve credit post Bankruptcy