Debt Settlement Explained

I am not a Bankruptcy attorney. The information provided should be used only as a reference.

First off, let me just say that Bankruptcy is a valid option for many, but only as a last resort. With the new bankruptcy laws in effect it is just not as simple as it used to be.

There are two types of Bankruptcy; Chapter 7, and Chapter 13. In a Chapter 7 Bankruptcy your debt is forgiven completely. To qualify for a Chapter 7 you need to be in a pretty bad situation, much worse than most people who are looking for help with their current unsecured debt.

Most people who declare Bankruptcy end up in a chapter 13. This is a repayment program set up by the court on a 3-5 year term, with 5 years becoming the norm. The courts will analyze your income, allow certain expenditures like rent or mortgage, etc… and anything left over at the end of the month is sent to a court appointed Trustee who doles out all of your extra money to each one of your creditors. Whatever is left unpaid at the end of the 3 – 5 year term is then forgiven.

In a Debt Settlement Program you retain control. You decide how much you can set aside on a monthly basis, within certain perameters, of course. You save the money in your own account; you decide whether or not to accept the ’settlement offer’, and you pay the creditor at that time.

In a debt settlement program, if for some unforseen reason you had to miss a payment, or could only make a half payment, it could all be worked out with your settlement company. You don’t have that option in a bankrupty. Missing a payment in a bankruptcy could ‘dismiss’ the process, opening you up to the probablility of immediate lawsuits by your creditors.

A debt settlement program is confidential. No one ever needs to know what you are going through. Bankruptcy is a Public Record, filed at the courthouse for the rest of time, and in some cases, published in your local newspaper!

A bankruptcy will be a very big black mark on your credit for up to 10 years. In a debt settlement program, while you could have ‘late pays’ indicated on your credit report for 7 years, the creditors are seemingly looking for 18-24 months of timely payments to become credit worthy again. FHA, as I understand it, is only looking for 12 months of timely payments before approving you for a home loan!

If your situation indicates that you would qualify for a Chapter 7, then that is probably the best thing you could do for yourself. Do not delay. Get it done and over with and get a fresh start. On the other hand, if you only qualify for a chapter 13, you could realistically end up paying back much more money over the course of 5 years than you ever would with a settlement program.

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