Bankruptcy versus Debt Settlement: Know Your Options
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Debt Negotiators Online will help you navigate the maze of debt management options. How do you evaluate bankruptcy versus debt settlement to know which is the right option for you. There are actually 2 kinds of bankruptcy quite different from each other.
Here is a brief description of each:
Chapter 7 Bankruptcy
Chapter 7 is a liquidation bankruptcy in which all your non-exempt assets are sold or otherwise liquidated to create a fund to pay your creditor’s claims. In exchange, your debts are discharged which means your legal duty to pay those debts is extinguished. Although a Chapter 7 Bankruptcy discharges debts, it generally does not discharge liens. So, while the obligation to pay a mortgage note may be discharged - the mortgage lien is not. Therefore, in order to keep a mortgage company from foreclosing on its lien, you may agree to pay or reaffirm the mortgage note. If you have no equity in your home over and above the exemptions, you can keep the house even though you have been through a Chapter 7 Bankruptcy. If you qualify, this may be your best option. However, many consumers find that even though they are drowning in debt they actually make too much money to qualify and are forced into a Chapter 13 Bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 is basically a forced debt settlement plan where you pay all or some of your debt over a three to five year time period through a Chapter 13 Trustee. If debt remains after you have completed the Court-approved Plan, that debt is discharged. In order for a Plan to be Court-approved (or confirmed), you must show that you can make the required payments and that all “disposable income” is applied to the plan. It is expected that if you can afford to proceed under Chapter 13 you would do so, rather than Chapter 7. In effect, you may still actually have to pay pack all the money you owe and the bankruptcy WILL go on the public record, which generally shows on your credit report for 10 years. To learn the specifics of how BK would affect you, you must meet with a Licensed BK Attorney in your state. I recommend you meet with at least two competent Bankruptcy Attorneys.
Consumer Credit Counseling Service
This is the most familiar option to most consumers. Usually these programs are funded by the creditors themselves. The general concept is that instead of making the minimum payments to all of your creditors individually, you will make one payment to the CCCS company. They will negotiate your interest rates down with your creditors and create a plan, usually around 5 years to have all of the debt paid back. With this plan you will certainly save money over simply paying minimum payments, but many consumers find that they either cannot qualify for a program like this, or they can’t afford the monthly payments to the CCCS company.
Debt Settlement
With Debt Settlement you actually negotiate the principle balance down, not the interest rates. The result is a significant savings on what you owe, typically 50%. Also, if you are a qualified candidate for Debt Settlement, you should be out of debt completely in about 2 years. You can learn to do this yourself or hire an expert to negotiate with your credit card companies for you. With expert guidance and support, you may actually be better off doing it yourself, as you will be less likely to get sued than if you pay someone to do it for you (and you pay less in fees as well)
While bankruptcy goes on the public record and stays there for as long as 10 years, debt settlement can be gentler on your credit rating. It largely depends on what is currently on your credit report and what you plan on doing to rebuild your credit after settling your debts. For some consumers, they can be in a good position credit wise in as little as a few months, for the vast majority of consumers however, it could be a 2 to 3 year period before they are back in a good credit position. Again, every situation is different and this is why it is important to request an individual consultation, to discuss your specific situation, and future goals before deciding if Debt Settlement is the right option for you.
However, most financial advisers will tell you that the very best thing you can do for your financial health is to get out of debt as quickly as possible. Taking a temporary hit on your credit is a small price to pay for the major payoff of being debt free. And most folks do not realize but if your debt to income ratio is too high with loads of debt, you won’t get a house loan or any other major loan even if your credit score is high. And besides, what’s the use of good credit if you are already drowning in credit card debt?
For more information on bankruptcy versus debt settlement and how to choose the best option for you, view the free video by debt management expert Damon Day.
Click here to view the free video now.
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