If you're one of the millions of Americans struggling to pay off your debt and believe that bankruptcy is the only solution left then you should absolutely understand how debt settlement works because it may very well be a better option for you. In any event, let's take a look at how both bankruptcy and debt settlement work.
Bankruptcy
Bankruptcy is a legal means by which an individual or business can legally discharge their debts and financial obligations. There are in fact two forms of bankruptcy that are commonly used that you may or may not be familiar with.
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Chapter 7 bankruptcy is when the debtor is completely absolved of paying back what they owe. Chapter 13 bankruptcy leaves the burden of repayment in place for some or all of the debts owed. In addition, Chapter 13 bankruptcy requires that all debts be repaid within five years.
It used to be that bankruptcy was rather easy to declare and a lot of people would simply run up debt and walk away from it. That is no longer the case. New bankruptcy laws that went into effect in October 2005 make it much more difficult to obtain Chapter 7 bankruptcy. In the case of Chapter 13 bankruptcy, the court dictates the terms of the settlement.
It is important to bear in mind that declaring bankruptcy can be devastating. It remains on public record for 10 years and makes it very, very difficult if not impossible to obtain future credit including credit cards, car loans, mortgages, etc. It can also prevent individuals from getting a job or even renting an apartment.
Debt Settlement
Of the two, bankruptcy and debt settlement, debt settlement is far less injurious. It is however, a very serious situation that must not be entered into lightly. Debt settlement, also known as debt negotiation and debt arbitration, is when the debtor negotiates a settlement with their creditor for a percentage of the total that is owed.
Let's say for instance that John owes $40,000 in credit card debt but can no longer afford to even make minimum payments. John then hires a debt settlement company to negotiate on his behalf and they successfully get the amount owed to the credit card issuer reduced to $22,000. The remaining $18,000 is written off or forgiven by the credit card company.
Creditors are willing to do this when they know that the consumer is in dire financial straits due to a loss of employment or catastrophic health issues. Sometimes things happen in life that we can't help. That doesn't mean that there aren't viable options available to assist us. It's just a simple case of knowing what those options are.
Consult a Professional
If you do choose to pursue bankruptcy, unless you're a lawyer yourself, you are going to need to hire an attorney to represent you. Debt settlement can be negotiated by an individual but that is not advisable. A far better solution is to hire a reputable debt settlement company that has the requisite experience and expertise to successfully negotiate the most favorable settlement possible on your behalf.
Is Bankruptcy Right For You? Talk to Bankruptcy Attorneys Free and Confidential. Licensed bankruptcy attorneys are available. Attorneys will call you to discuss your case for free. Find out if bankruptcy is right for your situation.
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