Bankruptcy VS Debt Settlement

Dealing with overdue debt is a major issue. There are many avenues that one can take in order to resolve debt and the best would be one that leaves little damage on your credit rating. It is important to know the comparison of bankruptcy vs debt settlement.

It should be done in a manner where you can receive loans and fresh credit cards without any effect due to the fact that you have a past debt.

What is bankruptcy?

Amongst the avenues of debt resolution are bankruptcy and debt settlement, which we shall compare today. Chapter 7 bankruptcy enables lenders to write off 100 percent of card debt within 90 days of application. Eligibility is regulated via strict income limits and means tests stated by the Bankruptcy laws of 2005.

Income denotes different kinds of bankruptcy that one can be eligible for. Chapter 13 bankruptcy is one where you still have to pay the debt in a time frame as prescribed by the court. Bankruptcy remains on one’s credit report for a period extending to 10 years while Chapter 13 bankruptcies are generally deleted after 7 years.

What is debt settlement?

Debt settlement is an alternative in debt resolution. In debt settlement, the debtor goes to a firm that negotiates terms with the creditor for a lump sum repayment. The lump-sum is less than the original principle but the debt is written off after the payment as the debt is settled with compromise from both sides. If you are located in Canada, this debt settlement can also be done in the form of a consumer proposal.

The debtor is asked to stop payments and directs them towards a savings bank account. On negotiation with the creditor, the debtor makes payment as is agreed through the debt settlement agreement and makes the repayment to the creditor. Debt settlement is shown on one’s credit record but it is not as damaging as the presence of a filed bankruptcy. The debt settlement firm also charges a certain amount of money for its services in negotiations.

Comparison of bankruptcy and debt settlement

There are many arguments that deal with bankruptcy vs. debt settlement. The recent economic crisis has propelled many people towards them. Debt settlement includes a lump sum payment in addition to certain monthly minimums until the settlement is agreed upon and executed. Bankruptcy requires a retainer for the attorney along with court fees and filing fees before bankruptcy can be filed for.

The attorney generally asks you to stop paying the minimums on unsecured debt and asks the debtor to respond with pre-decided responses when collection agencies call. Payments resume after the Bankruptcy is successfully filed if the bankruptcy filed for is a Chapter 13 bankruptcy.

Bankruptcy is generally recommended as an absolute final failsafe for consumers as it has a prolonged presence on their credit reports. When the need arrives for a new loan, a new credit card, or even while applying for jobs, it can be a difficult spot to explain the bankruptcy on record and many financial institutions stay away from such reports. The option between bankruptcy vs debt settlement is really based on how much money is actually owed.

Conclusion:

If the amount is relatively small, then it makes more sense to settle. If the consumer has absolutely no means of repaying the debt, then and only then should bankruptcy be approached.