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Debt Settlement or Bankruptcy: Exploring the Options
Should you negotiate to settle your debts or consider Chapter 7 or Chapter 13 bankruptcy? The choice may not be as difficult as you think.
June 13, 2010 /Personal Finance PR News/ -- For people who are overwhelmed by economic difficulties, debt settlement can seem like an attractive option. Debt settlement is an approach to debt reduction in which a creditor, in exchange for a negotiated one-time payment, forgives the remainder of the debt and reports it to credit bureaus as settled. However, creditors make debt settlement an extremely difficult solution to pursue, and debt-settlement companies, who can be hired to handle the legwork, often charge outrageous fees. For some consumers, bankruptcy may be a more desirable alternative. In determining whether debt settlement or bankruptcy is right, you should have a good understanding of each option and carefully select allies who can put you back on the path to financial security.
Bankruptcy Versus Debt Settlement
Bankruptcy and debt settlement are both potentially useful debt-management processes. But, there are some key differences. Bankruptcy is the legally declared inability of an individual or organization to pay creditors. As such, it can result in a court-ordered discharge of debt, which is enforceable against creditors. Chapter 7 bankruptcy can eliminate, or liquidate, most or all of your debts. Chapter 13 bankruptcy, on the other hand, restructures debt into a payment plan based on what a debtor can afford to pay.
Bankruptcy laws contain powerful provisions, such as the automatic stay, which shields debtors from collection proceedings against all creditors. Nonetheless, bankruptcy has many disadvantages that should also be considered. Although liquidation can essentially wipe clean an individual's debt, that party must also meet a series of stringent eligibility criteria. Furthermore, in bankruptcy liquidation the debtor has to give up certain properties to be sold - or "liquidated" - in order to pay off as much of the debt as possible (bankruptcy laws dictate which types of property can and cannot be taken away). Additionally, bankruptcy is a matter of public record and affects one's credit rating. While sometimes bankruptcy is the most logical option, its long-lasting consequences should not be taken lightly.
Debt settlement provides several distinct benefits. Although the debt settlement process will likely have a negative effect on your credit rating, it will not be as serious as the impact of a bankruptcy. In addition, there are no eligibility requirements for seeking debt settlement, and arriving at a debt settlement agreement can be a much more expedient means of dealing with creditors than filing for bankruptcy. Debt settlement, however, lacks the power of bankruptcy to halt collection actions, and produces no court order that can be enforced against uncooperative creditors. In other words, it only works to the extent that creditors voluntarily cooperate.
Moreover, as debt settlement involves direct negotiation with creditors, it is a complex process that usually requires outside help, and retaining the services of a debt-settlement company has pitfalls of its own. The U.S. Government Accountability Office recently announced the results of an undercover investigation of the debt-settlement industry that found the majority of companies collected fees before settling debts, and concluded that some debt-settlement companies engage in "fraudulent, deceptive and abusive practices that pose a risk to consumers." Debt-settlement companies normally use complicated formulas to calculate their fees, and according to some experts, often do little to earn them.
Getting Help
If you find yourself in trouble with creditors, who are you to turn to for help? The best organization to contact is a law firm that provides a full range of debt-relief services. Debt-settlement companies can only pursue one form of relief for consumers facing financial obligations, and have a strong fiscal incentive to push customers into seeking debt settlement, even if it is not the most prudent decision. Attorneys, on the other hand, are able to help their clients explore debt settlement, bankruptcy and other legal remedies such as consumer fraud actions. Knowledgeable attorneys will have experience helping clients with all forms of debt relief, and can provide counseling regarding the relative merits of each option. And, unlike employees of debt-settlement companies, lawyers are part of a rigorously regulated profession that requires licensure, continuing education and adherence to a strict ethical code that puts clients first.
Confronting debt can be an intimidating challenge. But you need not go it alone. With the assistance of a qualified, experienced attorney who specializes in debt relief, you can take the first steps toward a secure financial future.
Article provided by Clark Law Offices
Visit us at www.clarklawaz.com
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