subject: Debt Settlement Or Bankruptcy - What's the Best Option When You're Massively in Debt? [print this page] Debt Settlement Or Bankruptcy - What's the Best Option When You're Massively in Debt?
Debt settlement and bankruptcy are two methods which debtors use in order to clear off their debts. Even though bankruptcy stays on your credit report for at least 10 years debt settlement also has adverse affects on your credit rating. This article will deal with both the advantages as well as the disadvantages of these methods and then you can choose the method which will help you meet your financial goals.
Debt settlement can be of different types. One of the settlement methods allows a debtor to get a reduction in the interest rate. This will reduce the monthly payment amount. Generally if a customer has had a good payment history it is possible to negotiate up to 2% reduction in the rate of interest. Customers with not so good payment record can also try to negotiate on this ground but it will take lot of convincing on the debtors part.
Another way is negotiate a reduction in the total amount that needs to be paid off on the account. Any debtor with ten thousand dollars or more in unsecured debt can try to negotiate a debt reduction. A negotiation can get him as much as 40 % to 60 % of the total debt eliminated.
The main advantage of this method is that steps can be taken at the time of negotiation to remove the note from your credit report as a settled account which will lessen the impact on your credit rating.
Under the new law there are two types of bankruptcy. Bankruptcy under chapter 7 allows a debtor to liquidate all his assets in order to pay off the debts and the remaining is written off. Bankruptcy under chapter 13 is more of a repayment plan. The debtor gets to retain his assets but has a repayment plan in place.
Debt settlement is a legitimate alternative to filing bankruptcy. If consumers are experiencing a financial hardship and have at least $10k in unsecured debt then debt settlement can be a legitimate way to eliminate up to 70% of that balance.
