Debt Settlement vs Bankruptcy
File Ch 7 for just $125 learn more now. Thanks for visiting!
Due to the social stigma attached to bankruptcy and some desire to pay debts you are responsible for, you may be interested in debt settlement. Let’s talk about what debt settlement is and what the differences are between debt settlement and bankruptcy.
Debt Settlement
There is do it yourself debt settlement and debt settlement companies. Debt settlement companies charge you a fee to negotiate with your creditors to either get your interest rates lowered or forgive a portion of your balance in exchange for immediate payment of the rest of the debt. For instance they could lower your interest rate from 24% to 12%, or take your balance of $7000 and offer you the opportunity to pay $4000 right now to wipe out the debt completely. Fortunately for you, everything the debt settlement company can do for you, you can do for yourself for free.
If you are severely behind on your payments, most creditors will work with you, though maybe not as much as you would like. If you are behind, it probably also won’t help if you get an offer to pay off your balance in a negotiation because if you had that kind of money lying around, well, you wouldn’t be behind on your bills.
If you are not behind on your debts, say you just lost your job today and want to be proactive since you can see you won’t be able to pay it next month, well, honestly a lot of creditors won’t do anything for you. Even if you tell them you will have to file bankruptcy, they will wait until you are not paying them, on the off chance that you are just calling to get something you don’t really need.
If you do decide to negotiate a debt settlement plan with your creditors, keep in mind that you should ask how things will be reported on your credit report. In a lot of cases it’s corporate policy to consider your account to be “late” if you are paying less than your normal amount. For instance in a mortgage modification situation, if your bank offers you a decreased payment for a set amount of time to help you through a period of unemployment, they report your payments as late to the credit bureaus even if you are paying on time.
Bankruptcy
In a chapter 7 bankruptcy your debts that are in the bankruptcy discharge are completely forgiven immediately. Instead of having a debt settlement plan that may take years to pay off, your bankruptcy will give you a faster start. Compared to a debt settlement plan, ch 7 is a better choice if your creditors won’t work with you, or you simply don’t have enough income to even pay minimal payments even if a debt settlement plan was established.
If you make too much money however and need to file a chapter 13 bankruptcy then you will create a repayment plan that lasts 2-5 years with the bankruptcy court. The repayment plan in a ch 13 however can be set to repay only a portion of your debts over that time, and at the end of the ch 13 the rest of the debt would be wiped out. In debt settlement this option doesn’t exist. The bankruptcy trustee is also the person dealing with your creditors which can make it easier for you.
In the end, debt settlement vs bankruptcy will depend on how successful you are at negotiating with your creditors. Today, with the new bankruptcy laws, more and more creditors are forcing people into bankruptcy rather than helping them, so don’t be surprised if you don’t get very far in a debt settlement negotiation.
