Debt Settlements and Bankruptcy - What's the Difference?
Debt Settlements and Bankruptcy - What's the Difference
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If you have found yourself in a situation where you are way over your head in debt then chances are you have thought about either filing for bankruptcy or filing for debt settlement. You may be asking yourself what are they, and what does each one entail. How are they different, and which one is better for my situation?
These are all valid questions that everyone should be asking themselves whether they are lost in debt or not. The easiest way to understand them is to break them down.
Bankruptcy
A process you go though in which 100% of your debts are wiped clean, completely releasing you from that previous debt. There are restrictions however; it often does not include student loans as well as some government loans. You can be held in a bankruptcy status for up to seven years where you are not able to get any credit at all. This in itself can be a good thing but also can be a difficult hurdle to overcome.
After your seven year probation period it can still be years before any credit card company will give you any credit, and if they do chances are it will be with a really high interest rate. Bankruptcy should only be used as a last resort.
Debt Settlements
Debt settlements are an agreement between you and the credit card company to pay back a specific amount of money owed in a set time line (though not always) in order for the credit card companies to recoup some of their money. Once this amount is paid your account is closed and you no longer have credit with them. But you are free and clear of that debt.
You must speak to a credit counselor in order to go through this route as the credit card companies are not going to deal with you specifically. You are still required to pay a portion of the debt you owe back, but it is often a small portion that is easy to manage.
Debt settlement is a viable alternative to filing bankruptcy. Most consumers are able to eliminate at least 60% of their unsecured debt while avoiding many of the negative consequences with filing bankruptcy. If you are over $10k in unsecured debt you will be eligible for debt settlement.