If you think that the only thing that can save you from the burden of debt is filing for bankruptcy, you are wrong. Debt settlement is another option that lets you eliminate debt quickly. However, you first need to understand the difference between debt settlement and bankruptcy.
Debt settlement
This option can help you to eliminate your debts by paying less money than you owe. With the help of a debt settlement company, you will be able to negotiate lower payoff amounts with your creditors. By paying a single bill to a debt settlement company each month, you will be able to get rid of debts much quicker.
If your creditors refuse to agree to debt settlement, you should threaten to file for bankruptcy. Doing so might work because most creditors would rather recover as much money as possible. Debt settlements help you to save money and avoid bankruptcy, pay less than you owe, reduce collection calls, and settle credit card debt quickly.
When choosing a debt settlement company, you should look for one that offers online support because problems come unexpectedly. Moreover, a good debt resolution firm should be transparent when explaining the settlement process. How much are you willing to pay? Reputable companies will charge you per the industry standard.
Filing for bankruptcy
If you are struggling with your secured and unsecured debts, you should attend pre-bankruptcy counseling. Filing for bankruptcy is a debt-relief strategy that allows you to discharge your debts fully or partially under the protection of bankruptcy court. Depending on what you qualify for, there are 2 main types of bankruptcy options: chapter 7 and 13.
You should avoid bankruptcy by trying other debt relief options first. However, if your debts are out of control, it could be time to declare bankruptcy.
Here are some instances in which declaring bankruptcy is okay:
- You cannot manage finances even after talking to your credit counselor
- You have received foreclosure notice and you want to avoid losing your home
- You cannot reach an agreement with the creditors
- You are facing lawsuits and you want to stop them
- Your lender wants to repossess your car and you want to stop that
- Your debt obligations far outweigh your assets
Before filing for bankruptcy, you should analyze your finances and create a budget. Try debt relief programs and make alternative payment plans with your creditor. If these solutions fail, you should go for pre-pre-bankruptcy counseling or consult a lawyer who can offer bankruptcy advice.
Debt settlement vs. bankruptcy
Before you make a decision, here are some things that you should consider:
The total debt amount – you need to compute how much debt you owe including secured and unsecured debts. If you want to get rid of these debts, you should file for bankruptcy. On the other hand, you should choose debt settlement if you can afford to save a certain amount per month after paying for necessities.
Calculate your income – consider your rental income, paycheck, investment returns, and child support payments when calculating annual income. Opt for debt settlement if you can settle your debts without outside help. However, if you are struggling to save, then you qualify for chapter 7 or 13 bankruptcy.
Types of debts that you have – bankruptcy cannot eliminate all your debts, especially student loans. Unless you are undergoing major financial hardship, bankruptcy cannot get you out of paying student loans.
Impact on credit score – debt settlement and bankruptcy both affect your credit score negatively. A chapter 7 bankruptcy appears on your report for ten years while chapter 13 stays for seven years.
