Debt Settlement or Chapter 13 Bankruptcy

Posted on 2010-06-10 (UTC) by under Financial Services.

If your problem with unsecured debt is very serious, then you may have arrived at the point where a decision has to be made between two possible debt solutions: debt settlement and Chapter 13 bankruptcy. If you've done your homework correctly in arriving at this decision, then along the way you must have already ruled out debt management (also known as consumer credit counseling) and Chapter 7 bankruptcy. Perhaps the minimal monthly payment relief or the necessity of repaying the debts in full in a debt management program were insufficient to provide you with a realistic way forward in trying to become debt-free. You may have also discovered that you would not be able to pass the two-part "means test" instituted in the 2005 bankruptcy reforms and therefore would not qualify to even be considered for a Chapter 7 bankruptcy. So let's consider each of the two remaining credit card debt relief options in turn and see which may be the better choice for you.

Debt Settlement Programs

Debt settlement programs can typically reduce the enrolled debts by 40% to 60% and provide a very substantial reduction in monthly debt payments. Interest charges will no longer apply to these accounts as well. As a result, most consumers can become completely debt-free in just a few years. If the current debt situation includes large balances and high interest rates, it might otherwise take 25 years or even longer to become debt-free if only the minimum monthly payments are currently being made. As it turns out, many borrowers with considerable unsecured debt are making just the minimum payments. You should be aware that there is some credit damage that occurs as a result of credit debt settlement, but that it is relatively minor in comparison to that experienced with bankruptcy.

Chapter 13 Bankruptcy

If even the aforementioned benefits seem unlikely to extricate you from your current debt situation, then it may well be that your only real option is to find a good bankruptcy attorney and file Chapter 13 bankruptcy. Be forewarned that your credit will be ruined for 7 to 10 years, attorneys' fees for filing have risen since the 2005 reforms due to new liability, and you will be required to commit to a repayment plan lasting up to 5 years. If you decide that these penalties are just too much for you to tolerate and there is a choice in the matter, then perhaps debt settlement would be the better choice.

If you still have questions about your situation, then your best decision will be to speak with one of the debt professionals at Right Start LLC, a consumer debt relief company that provides debt management and debt settlement services. They have the knowledge and experience to advise you what your best debt relief help will be given your current situation.



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