First with regard to the definition of each: bankruptcy is a process established under the law through which people facing overwhelming debts can resolve them with the assistance and protection of the court. Conversely, debt relief is a private, far less regulated process through which private negotiators seek to reduce your total debt owed by making deals with creditors. On the face of it, the biggest distinction between the two is that bankruptcy is a process that operates through the courts with all the corresponding protections of the law, while debt relief is effectively a commercial business transaction between a creditor and the debt relief company.
Beyond this however, there are several other distinct differences, the first of which is that debt relief is optional for creditors, while bankruptcy is mandatory for them. This is to say, a creditor does not have to participate in debt relief unless they want to, while if someone files bankruptcy instead, their creditors are required to engage in the process and abide by all its rules. This means that while bankruptcy will always resolve most types of consumer debts, debt relief has no similar guaranty and can only resolve the debts that a creditor is interested in negotiating with them.
Another difference is that in bankruptcy, the vast majority of people who go through the process will receive something known as the “bankruptcy discharge”, which is essentially a court order that eliminates any personal obligation that a bankruptcy filer may have on the debts included in the discharge. This allows people going through the bankruptcy process to eliminate their debts, regardless of the amount, with the lowest possible payments to creditors (often nothing at all). Conversely, debt relief requires people to deal with each debt individually, and pay whatever the creditor is willing to settle for.
Lastly, because debt relief is an optional, private process, creditors retain all of the rights that they otherwise have, and if they decide not to participate, can proceed with billing, suing or garnishing as they otherwise would. Conversely, bankruptcy offers something called the “automatic stay” which prevents creditors from harming or harassing people going through bankruptcy.
Thus, there are clear and distinct differences between debt relief and bankruptcy, not least of which is that bankruptcy is a defined, structured, and legally protected process that offers a defined benefit to those going through it. If you are considering the possibility of debt relief and wish to explore alternatives that may be more beneficial for both your finances and your peace of mind, please consider giving us a call! We would be more than happy to have a consultation and discuss how the bankruptcy process may be right for you. So, when the time is right, or when you are ready, please don’t hesitate to reach out to Minnesota’s most kind and helpful bankruptcy law firm by going now to www.lifebacklaw.com.