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Deciding between debt relief and bankruptcy? Here are the factors to consider
There’s no question that the current economic landscape is difficult for borrowers. Not only did the interest rates on personal loans, mortgages and other lending products skyrocket throughout 2022 and 2023, but credit card rates did too. Right now, the average credit card rate is above 21%, so cardholders who are unable to pay their card bills in full each month are shelling out a lot of money in interest charges.
And, today’s high-rate environment isn’t the only economic hurdle Americans are facing. Other economic pressures, like persistent inflation continuing to devalue the dollar, are making it even more difficult for people to repay what they owe on their credit cards and high-interest debts.
If you’re one of the many who’s struggling due to growing balances on your credit cards, you may be wondering whether it’s time to pursue debt relief or bankruptcy to get your financial situation under control. But while both avenues can provide some relief from your growing debts, how do you decide which path is right for your unique circumstances? Below, we’ll detail exactly what you should know.
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Factors to consider when deciding between debt relief and bankruptcy
If you’re unsure whether debt relief or bankruptcy makes the most sense for your situation, it may help to consider the following factors:
Your debt-to-income ratio
One metric that’s important to consider as part of your decision is your debt-to-income (DTI) ratio. Your DTI ratio is the percentage of your income each month that goes toward paying your debts. This ratio can give you a good idea of whether your debt levels are sustainable or not, which can help you determine whether bankruptcy or debt relief makes more sense.
To determine your DTI ratio, you simply divide your total recurring monthly debt payments by your gross monthly income. Ratios above 40% are a signal that you likely have unsustainable debt levels that may require more than just a debt management plan or debt consolidation loan. In these cases, debt settlement or bankruptcy could make more sense.
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Cost considerations
Another factor that may sway your decision is weighing the cost of bankruptcy compared to the cost of debt relief programs. While filing for Chapter 7 bankruptcy may seem like the cheapest option, there are court fees, legal fees, credit counseling costs and other expenses to consider. Chapter 13 bankruptcy has even higher costs since it involves a multi-year repayment plan.
But debt relief can be a lot more affordable comparatively. For example, debt relief companies aren’t allowed to charge upfront fees prior to working on your case. Depending on the service they’re providing, these companies typically charge a percentage of the settled amount or a small monthly fee tacked onto your consolidated payment instead.
So those with very little disposable income may find the lower upfront costs of debt relief more manageable than having to pay hefty bankruptcy fees. Of course, DIY debt settlement or management could keep you from paying any program fees, but success rates are typically much lower.
Income and ability to pay
Your income level and ability to make any debt payments are also crucial to evaluating your choices. After all, most debt relief plans require you to make consistent, affordable payments to remain in good standing, so you’ll need to have some disposable income to put toward what you owe.
Bankruptcy, on the other hand, can simply exempt you from having to repay certain types of debts based on your income and asset situation. If your core living expenses for housing, utilities, food and transportation already consume most or all of your income, leaving little to put toward debts, bankruptcy may be prudent.
Asset protection needs
With a Chapter 7 bankruptcy, any non-exempt assets above allowances may be seized and liquidated to repay creditors. While many states offer exemptions for things like home equity, vehicles, household goods and retirement accounts, asset protection needs could make debt relief programs preferable if it’s vital to keep those resources intact.
Credit score impact
Credit score impacts are another major consideration. Any debt relief measure can put a temporary dent in your credit score, but filing for bankruptcy typically leads to the biggest negative impact, at least initially. Other programs like debt management plans and debt settlements typically lead to less severe credit score damage, meaning that they could be the ideal option if you need to preserve your credit profile to qualify for a mortgage or other important financing.
Legal protection
With debt relief programs, your creditors maintain the ability to potentially file lawsuits or garnish wages if you default on payments. This legal risk is something to consider. Bankruptcy provides the strongest legal protection once filed and approved, preventing creditors from continuing collection efforts.
Tax implications
There can also be potential tax implications with debt relief. Forgiven or settled debts may count as taxable income depending on the circumstances. When bankruptcy forgiveness is filed properly, those debts generally aren’t considered taxable income.
The bottom line
Ultimately, there is no one-size-fits-all solution when facing insurmountable debt. The right choice depends on carefully weighing your unique financial circumstances, priorities, eligibility and preferences. And, if you still aren’t sure, consulting with a qualified credit counselor, bankruptcy attorney or financial advisor may provide further guidance and clarity on the best path for regaining control and achieving true freedom from debt.
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Sen. Tammy Duckworth says Pete Hegseth is “flat-out wrong” about women in combat roles
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Sen. Duckworth says Trump defense secretary pick is “flat-out wrong” about women in combat roles
Democratic Sen. Tammy Duckworth said Sunday that Pete Hegseth, President-elect Donald Trump’s pick for defense secretary is “flat-out wrong” in his view that women should not serve in the military in combat roles.
“Our military could not go to war without the women who wear this uniform,” Duckworth said on “Face the Nation with Margaret Brennan.” “And frankly, America’s daughters are just as capable of defending liberty and freedom as her sons.”
Trump tapped Hegseth, a former Fox News host and Army veteran who served in Iraq and Afghanistan as his pick to head the Defense Department earlier this month. The 44-year-old has drawn criticism for his stance on women in combat roles, along with his level of experience.
Duckworth, who in 2004 deployed to Iraq as a Blackhawk helicopter pilot and sustained severe injuries when her helicopter was hit by an RPG, outlined that women who serve in combat roles have met the same standards as men, passing rigorous testing. She said Hegseth’s position “just shows his lack of understanding of where our military is,” while arguing that he’s “inordinately unqualified for the position.”
“Our military could not go to war without the 220,000-plus women who serve in uniform,” Duckworth said. She added that having women in the military “does make us more effective, does make us more lethal.”
Hegseth has also drawn scrutiny amid recently unearthed details about an investigation into an alleged sexual assault in 2017. Hegseth denies the allegation and characterized the incident as a consensual encounter. The Monterey County district attorney’s office declined to file charges as none were “supported by proof beyond a reasonable doubt.” His lawyer has acknowledged that Hegseth paid a confidential financial settlement to the woman out of concern that the allegation would jeopardize his employment.
Duckworth, an Illinois Democrat who serves on the Armed Services and Foreign Relations Committees, said it’s “really troubling” that Trump would nominate someone who “has admitted that he’s paid off a victim who has claimed rape allegations against him.”
“This is not the kind of person you want to lead the Department of Defense,” she added.
The comments come after Trump announced a slew of picks for top posts in his administration in recent days. Meanwhile, one pick — former Rep. Matt Gaetz for attorney general — has already withdrawn his name from consideration after he faced intense scrutiny amid a House Ethics Committee investigation and a tenuous path to Senate confirmation.
While Duckworth acknowledged that she’s glad her Senate Republicans “held the line” on Gaetz and also elected Sen. John Thune as leader over a candidate favored by many in Trump’s orbit, she said she’s “deeply concerned” her Republican colleagues will green light Trump’s nominees.
“From what I’m hearing from my Republican colleagues on everything from defense secretary to other posts, it sounds like they are ready to roll over for Mr. Trump,” Duckworth said.
But Duckworth didn’t rule out supporting some of the nominees herself during the Senate confirmation process, pledged to evaluate each candidate based on their ability to do the job, and their willingness to put the needs of the American people before “a retribution campaign for Mr. Trump.”
Meanwhile, a CBS News poll released on Sunday found that 33% of Americans say Hegseth is a “good choice” for defense secretary, including 64% of Trump voters. But 39% of Americans said they hadn’t heard enough yet about the pick. More broadly, Americans generally say they want Trump to appoint people who’ll speak their minds and who have experience in the field or agency they’ll run.
Sen. Rand Paul, a Kentucky Republican who also appeared on “Face the Nation” on Sunday, said he believes that Hegseth can run the massive Defense Department, despite his lack of experience managing a large organization. Though he did not address Hegseth’s comments about women in combat roles, Paul said he believes the “vast majority of people” support leaders who are picked based on merit, citing Hegseth’s criticism of the Pentagon for what he says has been a move away from merit-based hiring and toward hiring based on “racial characteristics.”
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Israeli strike kills Lebanese soldier as Hezbollah fires at least 185 rockets at Israel
Hezbollah fired at least 185 rockets and other projectiles into Israel on Sunday, wounding seven people in the militant group’s heaviest barrage in several days, in response to deadly Israeli strikes in Beirut while negotiators pressed on with cease-fire efforts to halt the war.
Meanwhile, an Israeli strike on a Lebanese army center killed one soldier and wounded 18 others on the southwestern coastal road between Tyre and Naqoura, Lebanon’s military said. Israel’s military expressed regret and said the strike occurred in an area of combat against Hezbollah, adding that its operations are directed solely against the militants. The strike was under review.
Israeli strikes have killed over 40 Lebanese troops since the start of the war between Israel and Hezbollah, even as Lebanon’s military has largely kept to the sidelines.
Lebanon’s caretaker prime minister, Najib Mikati, condemned it as an assault on U.S.-led cease-fire efforts, calling it a “direct, bloody message rejecting all efforts and ongoing contacts” to end the war.
“(Israel is) again writing in Lebanese blood a brazen rejection of the solution that is being discussed,” a statement from his office read.
The strike occurred in southwestern Lebanon on the coastal road between Tyre and Naqoura, where there has been heavy fighting between Israel and Hezbollah.
Hezbollah began firing rockets, missiles and drones into Israel after Hamas’ Oct. 7, 2023, attack out of the Gaza Strip ignited the war there. Hezbollah has portrayed the attacks as an act of solidarity with the Palestinians and Hamas. Iran supports both armed groups.
Israel has launched retaliatory airstrikes since the rocket fire began, and in September the low-level conflict erupted into all-out war, as Israel launched waves of airstrikes across large parts of Lebanon and killed Hezbollah’s top leader, Hassan Nasrallah, and several of his top commanders.
Hezbollah fired a total of around 160 rockets and other projectiles into Israel on Sunday, some of which were intercepted, the Israeli military said.
Israel’s Magen David Adom rescue service said it was treating two people in the central city of Petah Tikva, a 23-year-old man who was lightly wounded by a blast and a 70-year-old woman suffering from smoke inhalation from a car that caught fire. The first responders said they treated three other people in northern Israel, closer to the border, including a 60-year-old man in serious condition.
It was unclear whether the injuries and damage were caused by the rockets or interceptors.
Israeli airstrikes early Saturday pounded central Beirut, killing at least 20 people and wounding 66, according to Lebanon’s Health Ministry.
Israeli attacks have killed more than 3,500 people in Lebanon, according to Lebanon’s Health Ministry. The fighting has displaced about 1.2 million people, or a quarter of Lebanon’s population.
On the Israeli side, about 90 soldiers and nearly 50 civilians have been killed by bombardments in northern Israel and in battle following Israel’s ground invasion in early October. Around 60,000 Israelis have been displaced from the country’s north.
The Biden administration has spent months trying to broker a cease-fire, and U.S. envoy Amos Hochstein was back in the region last week.
The European Union’s top diplomat called for more pressure on both Israel and Hezbollah to reach a deal, saying one was “pending with a final agreement from the Israeli government.”
Josep Borrell spoke Sunday after meeting with Mikati and Lebanese Parliament Speaker Nabih Berri, a Hezbollah ally who has been mediating with the group.
Borrell said the EU is ready to allocate 200 million euros ($208m) to assist the Lebanese military, which would deploy additional forces to the south.
The emerging agreement would pave the way for the withdrawal of Hezbollah militants and Israeli troops from southern Lebanon below the Litani River in accordance with the U.N. Security Council resolution that ended the 2006 war. Lebanese troops would patrol the area, with the presence of U.N. peacekeepers.
Lebanon’s army reflects the religious diversity of the country and is respected as a national institution, but it does not have the military capability to impose its will on Hezbollah or resist Israel’s invasion.