Before you proceed to meet an attorney, you should be considering a better alternative to bankruptcy, i.e. Debt Settlement.
Debt Settlement vs. Bankruptcy
Debt Settlement is a process of reducing your debt by negotiating with your creditors by agreeing on a reduced balance to be paid in a certain period of time. This reduced payment could be anywhere between 25% – 70% of the actual balance you owe.
When you are unable to meet your liabilities with your current monthly income, you should consider debt settlement as an option before you opt for Bankruptcy. However, there are some key elements involved with Debt Settlement that you should be aware of.
Is Debt Settlement possible?
Debt Settlement is possible if you have some considerable excess income left after meeting your monthly financial commitments such as housing expenses, gas, groceries, etc. Also, most Debt Settlement companies expect you to have a total debt of at least $7,500 for them to consider your case and negotiate with the creditors on your behalf.
The first major setback with Debt Settlement is that most of the time it doesn’t work out with all your creditors. Say you have a debt of $2000 with Creditor A and a debt of $1500 with a Creditor B when your total savings are $1750 with which you would like to settle them. Creditor A might agree on a 50% settlement but Creditor B doesn’t – you wouldn’t be able to pay them both. Debt Settlement mostly works if the number of creditor accounts you have is limited.
Debt Settlement also does not wipe away your debt completely. Debt Settlement companies do not guarantee that your creditors stop harassing you or sue you after settlement – if you do not choose carefully, you might have to file bankruptcy even after settling your debt. Bankruptcy on the other hand clearly wipes out all your debt since it is a court procedure. You are completely relieved of all your debts and are allowed to rebuild on your finances.
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Why not file Bankruptcy?
Bankruptcy might seem like an attractive option for the following reasons
- It gives you a clean slate by wiping away all your debts
- Your creditors cannot come back after you once you file for Bankruptcy. It would be illegal for them to do so.
However, it should be noted that student loans will remain even after you file for bankruptcy. Also, filing for bankruptcy will potentially ruin your chances of buying a home for the next 10 years since a Chapter 7 and Chapter 11 Bankruptcy will stay in your credit report for the next 10 years and a Chapter 13 Bankruptcy for 7 years.
Even though there are clear advantages to filing bankruptcy over debt settlement, you should do so only if debt settlement is not an option. Legitimate Debt Settlement companies could be hard to find and most of the advertisements you see on TV are outright fraudulent. It is important that you carefully assess the pros and cons of both the options before you resort to one.
Share this article with your friends on Facebook, Twitter and LinkedIn to enlighten them on the options available to them when they find themselves debt-laden. Making a wrong decision could potentially ruin their financial lives forever.
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