The Right Financial Solution for You: Debt Settlement vs. Bankruptcy

Debtors? prisons are a thing of the past, but really, we all live in them when we struggle to make our minimum payments, use credit to pay bills, and juggle our payments.  We don?t feel free to live our lives, and we may even live in fear ? of creditors? calls, threatening letters, and impending judgments against us.  While it may seem very bleak to you, there is assurance in knowing that there is a way out.  There are two important keys to getting out of debt:  finding the right solution and starting now.

When they owe thousands, or even tens of thousands of dollars, to creditors, many people assume that their only way out is through the difficult process of bankruptcy.  And for some, unfortunately, this may be true.  However, for many of these people, another option may offer a route out of debt that is smoother, a bit easier, and reestablishes a sense of control over their financial lives.  Debt settlement is a process through which your total debt is reduced, and you work to make monthly payments and pay off creditors in full.  Which is right for you?

There are two different types of bankruptcy for individuals: chapter 7 and chapter 13.  In chapter 7, a person?s non-exempt assets are liquidated and the funds used to pay creditors.  Non-exempt property can include a second or vacation home, bank accounts, bonds, valuable items, including collections, a second vehicle, and other items of value.  Those filing for chapter 7 can keep reasonably necessary clothing, household goods, and furnishings, pensions, personal injury awards, public benefits, and tools of his trade, jewelry, and vehicles to a certain value.

Chapter 13 is also called reorganization bankruptcy.  In essence, your debts are reorganized by the court, and you have three to five years to pay them off.  Many opt for chapter 13 because they do not qualify for chapter 7 under new laws or they have non-exempt property they want to keep. If you would like to file chapter 7, which essentially eliminates your qualifying debts, you must pass the Bankruptcy Means Test, which takes into account your current income level, family size, etc.

In either method, your debt is handled in a legal manner, and you are required to receive credit counseling before filing.  This can be helpful because you explore other options and can learn valuable tips for managing money and debt more healthily.

However, there are drawbacks to the bankruptcy process.  The first and most obvious is that your credit score suffers tremendously.  A bankruptcy stays on your credit report for at least seven years.  During this time, it is exceedingly difficult to obtain good credit.  If you do get a loan or mortgage, you will be unfavorably high interest rates and may not qualify for the full amount for which you ask.

In addition, because of new, more complex bankruptcy laws, many people need to hire a lawyer specially trained in this area of the law.  For people struggling with debt, this is a burden to say the least.  Another reality of bankruptcy is that it is one of the most stressful events a person can go through in his lifetime.  It is on the top ten biggest stressors list, in the category of losing a spouse, losing your home, etc.  It is very difficult on your mental health, very stressful, and very trying for your whole family. For your sanity alone, it may be well worth it to explore an alternative.

Debt settlement is only similar to bankruptcy in a few regards:  you do have a way to handle your debt, and it is a legal process.  Beyond that, the two are very different.  Debt settlement offers a way to escape debt without the tremendous burden of stress and attorney bills that can accompany bankruptcy.  In a reputable debt settlement, or debt negotiation program, you make a monthly payment into an escrow account which is specifically reserved for paying your creditors.  One at a time, settlement specialists negotiate with your creditors to reduce the overall balance that you owe.  For instance, a $10,000 credit card bill may be slashed to $5000, or even less.

You then pay that creditor in full as soon as your escrow account as sufficient funds.  You cross that one off the list, and the specialists move on to the next.  In this systematic manner, all of your unsecured debt can be eliminated.

While your credit score does initially dip, it ultimately is healed by your efforts because creditors are being paid in full.  When you work with a program like this, you can be debt free in a matter of three to five years.  Free of debt.  Did you ever think that was possible? It can be when you choose the right road.  Debt settlement will get you there.  Start now so you get out of that prison.

Learn about debt settlement, debt consolidation, debt relief, and more at Impact Debt Settlement.