It seems everybody knows somebody who's filed bankruptcy at some point. On the flip side, most people will probably tell you they don't know of anyone who's used a debt settlement program before. That's because, for some reason, the words debt settlement seem to be taboo compared to the word bankruptcy. The funny thing is, debt settlement is less drastic that filing for bankruptcy. You can make your own opinion about that, We'll just help you compare them side-by-side.
Bankruptcy vs Debt Settlement is a Decision Many Ask Themselves
Debt settlement and bankruptcy are both designer to help individuals, couples, and businesses that are financially up-side-down. In some ways settling debt is more restrictive than bankruptcy. But in other ways bankruptcy is more restrictive than debt settlement. The main objective, for starters, is to determine which method is best for your debt situation. You don't want to pay to file for bankruptcy just to find out you don't qualify. That's money you can't afford to be out. Below we will highlight some qualifying factors for both options as well as some pros and cons for each. Ready... set... LET'S DEAL WITH DEBT!
Filing for Debt Settlement
Getting a creditor to settle on a lower payoff is based mainly on two factors. If you are past due or not, and to what degree. When it comes to unsecured debts, at some point during a delinquency it's in the creditors best interest to come to except less. There is no hard and fast percentage, but typically with an experienced debt settlement company you can expect to pay about 50% of what you owe. This includes the debt settlement company's fees. In the bankruptcy vs debt settlement match this would be a point for debt settlement.
Trying to Settle Your Debts Yourself
You can also try to settle the debts with your creditors yourself. The biggest advantage to using a company, though, is that they will typically get you a better settlement. This is because they settle many debts at once with each creditor. They also settle them electronically which streamlines the process tremendously. This saves the creditors time and expense which is passed on to you. Just another factor to contemplate when comparing bankruptcy vs debt settlement.
During the Debt Settlement Process
During the settlement process, the creditor should suspend any collection actions once you have come to an agreed settlement. Once the debts are settled, they will reflect on your credit reports as paid or paid for a settled amount. This is less harsh on your credit compared to filing bankruptcy. You will, however, have to pay taxes on any amount you save on principle.
Filing for Chapter 7 Bankruptcy
With a Chapter 7 bankruptcy your debt is wiped out. The types of debts that you can include in a Chapter 7 bankruptcy include medical bills, credit cards and unsecured loans such as bank loans. In rare exceptions private student loans may be able to be included. They can only be accepted if your financial hardship is severe and spans a significant period of time. If it's assessed that you don't have the ability to make payments on your private loans then there is a chance you could include them.
Qualifying for Chapter 7 Bankruptcy
You must meet the means test guidelines In order to qualify for a Chapter 7 bankruptcy. These guidelines are based on the Census Bureau data. It includes where you live, your income and how many dependents you have. You will not qualify for Chapter 7 if you do not meet the requirements and are above the minimum income level based on these factors. The only exception to this is if you can provide proof that you still do not have enough income to make monthly payments of a certain percentage to your creditors.
You will usually lose some assets during the process of a chapter 7. They will be sold and used to pay toward your outstanding debts to your creditors. Filing for exemption from this is an option but the federal or state government exemptions have limits. There are definitely some vivid contrasts when comparing bankruptcy and debt settlement. Hopefully this article will give you enough insight to steer you in the best direction.
Filing for Chapter 13 Bankruptcy
Chapter 13 is a longer process than a chapter 7 bankruptcy and is more limited on how much debt you can include. Although it's easier to qualify for, it probably won't save you as much as working out a settlement through a reputable debt relief company. Like debt relief, you must agree to pay back some of the debt over a five year period. In the case of chapter 13 you may have to agree to pay back all of the debt. This will be based on the type of debt you include in your filing.
You must keep up with the payments or your case will be dropped and you will have surrendered any money paid in. This opens the door for the creditors to come after you personally for any unpaid balance. The good news is that you won't lose any personal assets in a chapter 13 like you will in a chapter 7 as long as you keep up with your payments.
Making a Decision Between Debt Settlement or Bankruptcy
Under certain circumstances bankruptcy might make more sense. In many cases, however, debt settlement is probably the better choice. This is because it's harder to qualify for a chapter 7 bankruptcy and a chapter 13 doesn't really accomplish as much as debt settlement. It is, however, more harsh on your credit score. There are definitely cases where chapter 7 is the best and, probably, only realistic choice, though. The best thing you can do is make a good evaluation of your situation and see what makes the most sense for you.
Private Student Loan Debt Settlement
One of the debts on the incline for debt settlement are private student loans. The need for private student loan forgiveness has risen as the price of education has risen. Among private student loans, the need for Sallie Mae loan forgiveness has led the way. This is because Sallie Mae is the largest private student loan lender. When comparing debt settlement vs bankruptcy, private student loans are better dealt with by using a debt settlement program. The reason is because private student loans are hard to bankrupt on. For more information on gaining relief from your private student loans visit the links above.