Getting frequent calls and letters from the debt collectors will increase the stress during the hard times. fortuitously, there are some solutions for those dealing with what seems to be insurmountable debt. Bankruptcy and debt settlement are two very different choices for people those who involved in a financial crisis.
Chapter 7 and Chapter 13 are two types of bankruptcy, and bankruptcy is generally considered to be the best choice. Basically the Chapter 7 bankruptcy eliminates an individual's unsecured debt, and a Chapter 13 bankruptcy sets up a repayment plan over the next 3-5 years to pay off the individual's debt. Bankruptcy can adversely impact an individual's credit score as the bankruptcy stays on the credit report for up to 10 years but since most people who file bankruptcy already have bad credit this does not really affect them.
Debt settlement providing individuals with a way to pay off debt but also adversely affects their credit. What the debt settlement companies perform is have the consumer quit paying their credit cards and start making payments to the debt settlement companies who take their fees right off the top. The consumer will pay a set amount every month to debt settlement company who will NOT pay the credit cards and use the fact that the credit card is not getting paid to leverage the credit card company to settle the account for about 50%.
This happens only when the debt settlement company has been fully paid by the consumer. Oftentimes the credit card company will refuse to settle the account and file bad credit information and also file lawsuits against the consumer who then will do what they should have done in the first place and file a chapter 7 or chapter 13 bankruptcies. In a chapter 7 or even a chapter 13 bankruptcy the most a person will pay back on credit cards is 10% of their total credit card debt.
In addition, fees of the debt management companies are unstructured and can end up being extravagant.