Chapter 13 Bankruptcy Or Debt Settlement Which Is The Way To Go

2008-02-09 Word Count: 507 Category: Debt Consolidation

Back in 2005 there was a turn around in the bankruptcy laws. The change in the law has made it much harder for a debtor to qualify for Chapter 7. This is an entire discharge of the debt owed. If someone dosen't pass the "means test" to enroll for Chapter 7 then they will have to file a Chapter 13. A Chapter 13 is a court run settlement process. In this process the court tells you what you will pay back to whomever you owe the debts for a five year period, by reviewing your finances in great detail.
So obviously a Chapter 13 is not as lucrative of an offer as a 7. This moves the majority of people away from going bankrupt to look for other methods of credit card debt relief. One of the fastest growing and more attractive debt relief techniques then becomes credit card debt settlement.
This is a technique in which one must fall past due on their debts while saving up the required funds on the side, to then negotiate a one time settlement, at a much reduced sum from the original balance owed. While debt settlement does have a short term negative effect on someone's FICO score, it is not anywhere near as harmful as bankruptcy. Settlement is not made a public record like bankruptcy.
A debtor can expect to save themselves roughly 50% of what the debt was initially. And look to have themselves become debt free within a matter of 2-3 years for some much sooner. Making credit card debt settlement a much more attractive proposal than a Chapter 13 bankruptcy.
The truth is in many cases people will end up saving more money with debt settlement is almost reason enough. On top of the fact that the longest it will take to be debt free is 3 years. When in comparison to a bankruptcy that will take five. Plus settlement is a private matter and not a publicly known record for the rest of your life, as with a bankruptcy. Then there is your credit rating, debt settlement appears a lot better than bankruptcy.
There are three ways someone can go about settling their debts. First off you can do it yourself, which is to a great extent advised against if you don't know what you are doing. If someone cant do it themselves then a debt settlement company can be hired to help settle someone's debts. There are many honest debt settlement companies however one must due diligence on a company to ensure they are reputable and honest. Then you can contact a debt settlement attorney as well. You can get more protection retaining a law firm, and often times they can negotiate lower settlements as well. And being that lawyers must be active members of their States Bar Association you get the additional protection in knowing that they must account to a higher power. There are far less unethical establishments that are law firms then debt settlement companies.

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Joe Rodgers is a debt analyst and research assistant with the US Consumer Advocate, which primarily practices in credit card debt relief (www.uscaonline.com).