If you are overwhelmed by debt and are considering filing for bankruptcy, you should know you have another alternative. This article will discuss the differences of debt settlement vs bankruptcy and how you can find out which option is the the best for you.
Bankruptcy is a legal process that offers relief to consumers devastated by excessive debt by discharging their financial obligations. Depending on the type of bankruptcy you qualify for, you will either be released from all your debts (chapter 7) or ordered to pay a few or all of them (chapter 13) over a period of five years. However, in accordance with a stricter bankruptcy law effective October 2005, very few people qualify for chapter 7 bankruptcy. In chapter 13, the court determines the monthly amount you must pay according to allowable living expenses, which are not determined by your actual expenses, but by IRS schedules.
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You can find out what type of bankruptcy you qualify for by reading the current bankruptcy code which can be found in the internet, but unless you are familiar with complex legal jargon, you will be better off reading a good book on the topic. Moreover it is to your benefit to consult a bankruptcy attorney, this way your questions will be answered by an expert in the field. You also have to expect to pay at least filing and attorney's fees. The record of your filing will stay with you for ten years and it is a public record, thus your privacy will also be compromised. Additionally, bankruptcy may affect future jobs and loan applications.
Debt settlement, also known as debt negotiation, requires negotiating with creditors to settle for 50% or less of the amount owed. Debt settlement, like bankruptcy, is specifically for people who are no longer able to keep up with their monthly payments due to a legitimate hardship which caused them a significant loss of income. With debt negotiation you have two options: hire a debt settlement company and be prepared to pay at least 15% of your total debt or do your own negotiating with the help of a reputable training course and pay a small fraction of what you would pay a debt settlement firm.
Unlike bankruptcy, debt settlement is not a matter of public record and negative data stays in your credit report for up to seven years, but you can rebuild your credit in one to two years, the payments are flexible and are controlled by you, not by the court. The duration of chapter 13 is five years with fixed payments dictated by the court, the duration of a debt settlement program, depending on your monthly budget and other financial factors, is from six months to three years.
As you can see, these are just the main differences between debt settlement vs bankruptcy. If you decide to file bankruptcy, your best bet will be to consult with a bankruptcy attorney. However if you prefer to go with debt negotiation, is best to find out more details about the do it yourself approach and the debt settlement firm. Hopefully, this will help you in your quest to eliminate your debt and make a final decision as to what program is best for your particular situation.
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