Bankruptcy vs. Debt settlement. What is the best and why? What will hurt your credit worse? With these bad times, I think seriously about bankruptcy, debt settlement cons. I do not know which is better? I know none of them are good. I do not know. But that one is bad on your credit? Or should I say that it expects the worst. I was told that the settlement of the debt does not appear on the credit, but I find it hard to believe. I just want clear answers and I do not know where to turn.
Hi David,
Great question! Warning: So far, there are inaccuracies in each of the previous questions. Let me clarify, with clear answers:
First, let's look at the bankruptcy ...
There are two types of personal bankruptcy filings:
Chapter 7 and Chapter 13
Chapter 7 bankruptcy is a liquidation. This is where you usually pay a lawyer anywhere from $ 800 to $ 3k + on the record and in a few months, your debts are erased. This is the fastest way to get out of debt for the total direct cost.
Chapter 7 stays on your credit file (see the list of all accounts included in bankruptcy) for ten years. It is being released for 20 years. Bankruptcy may be additional costs, including your credit limit (currently there are no mortgages available up to 2 years after the release), higher interest rates and fees, plus the required filings, disqualify you for certain types of employment and more.
Chapter 13 bankruptcy is a repayment plan. "This is a repayment plan ordered by the court, usually 60 months. All missed payments you lose the protection of the courts and your creditors would then after you.
Chapter 13 remains on your credit file (see the list of all accounts included in bankruptcy) for seven years after the release date, which is generally five years after filing, severely damage your credit for a total of TWELVE YEARS. Chapter 13 is also public record for twenty years and has most of the additional costs mentioned above for Chapter 7.
The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), enacted in October 2005, made sweeping changes to U.S. bankruptcy laws. Many provisions of the bill have been specifically designed to make it "more difficult for people to file for" bankruptcy, particularly Chapter 7.
Often my clients tell me their estimates for the repayment plans under Chapter 13, which would require them to pay a higher percentage of debt over a longer period of time with a higher monthly payment than what they could do otherwise through a debt settlement.
Oh, and you can find it funny ...
Some friends of mine bankruptcy attorney shared a story with me ... on how a Chapter 13 bankruptcy is like a turkey dinner. "You see, everyone is seated at the dinner table, the judge, prosecutor, your creditors ... Each with a bib , fork and knife in hand, two hands, drooling and licking their chops ... And guess who is the turkey? In Chapter 13, you're the turkey!
On a more serious note ...
Important social, emotional and psychological risk is also involved in the bankruptcy filing. Each of us must decide for ourselves where we stand on these levels.
Debt settlement, on the other hand is the fastest way to become debt free for less money, while avoiding bankruptcy.
There are several reasons to avoid bankruptcy at all costs.
Debt settlement is a legal person, the moral and ethical option for people in financial difficulty.
How does debt settlement affect credit?
It's a good question; deserve a quality answer that you can apply to your own situation.
I wrote two articles that cover in detail:
Debt Settlement - Is it not affect your credit score?
Posted on March 10, 2010.
