Bankruptcy vs Credit Card Debt Settlement between the two what is the smarter method
In 2005 there was a reform in the bankruptcy legislation. The change in the law has made it much harder for a person to qualify for Chapter 7. A Chapter 7 will discharge the debt owed in it’s entirety. If a consumer dosen’t pass the “means test” to be excepted for Chapter 7 then they must look to go through what’s called a Chapter 13. A Chapter 13 is a court dictated repayment procedure. Where the court tells you what you will re-pay to your creditors for a five year period, by analyzing your finances in great detail.
As you can probably tell a Chapter 13 for most is not as pretty of an offer as what a Chapter 7 is. This drives the majority of people away from going bankrupt to look for other systems of credit card debt relief. One of the quickest growing and more attractive debt relief techniques then becomes credit card debt settlement.
This is a technique in which one must default on their unsecured debts’ while saving up the necessary money on the side, to then negotiate a one time settlement, at a much lowered sum from the balance owed. While debt settlement does have a temporary negative effect on someone’s FICO credit rating, it is not anywhere near as harmful as bankruptcy. Plus debt settlement is not by any means a public record, however a bankruptcy will be a public record for the rest of the persons life.
A debtor can look forward to saving themselves roughly 50% of what the debt was at first. And look to have themselves become debt free within a matter of 2-3 years for others much sooner. Which makes credit card debt settlement a much more attractive offer than a Chapter 13 bankruptcy.
The fact that in many cases consumers will end up saving more money with debt settlement, is almost reason enough. On top of the fact that the maximum it will take to be debt free is 3 years. When compared to a bankruptcy that will take five. Plus settlement being a private issue and not a publicly known record for the remainder of your life, as with a bankruptcy. And you cannot forget your credit rating, debt settlement looks a lot better than bankruptcy.
There are three ways that a debtor can settle the debts they owe. First off you can do it yourself, which is deeply advised against if you do not know what you are doing. Then a debt settlement company can be hired to assist in settling someone’s debts. There are many good debt settlement companies however one must due diligence on a company to ensure they are reputable and honest. Then you can contact a debt settlement law firm as well. You can get more safety using a law firm, and often times they can work out lower settlements as well. And being that lawyers must be reputable members of their States Bar Association you get the additional protection in knowing that they must account to a higher power. There are far less unethical establishments that are law firms then debt settlement companies.
Joe Rodgers is a debt analyst and research assistant with the US Consumer Advocate, which primarily practices in credit card debt relief.
- Joe Rodgers
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