Debt settlement and bankruptcy are options for relieving consumers from debt burden. Although each of these options is designed to resolve your debt problems, the former is generally placed as an alternative to the latter. Each of these options has their share of advantages and disadvantages.
Bankruptcy:
Those consumers who have enormous amount of unsecured debt (like credit card bills, medical bills, personal loans, etc.) yet to be paid and have no concrete means for repayment. This situation may arise because of loss of jobs or, reckless spending by credit card beyond earning capacity.
Bankruptcy is usually the last option to resolve your debt. It can relieve the consumer of the entire amount of debt which any other debt relief option is unable to do. This may sound very attractive to the consumers but there is a serious catch behind this elimination.
Filing of bankruptcy comes as a very bad mark on the credit report and it remains there for 7 to 10 years in the least. During this period the consumer may not be able to take any further loans because no lending institution will have faith in the financial stability of the consumer.
The consumer will have to give up on the credit cards if he owns more than two of them. His assets may go under a trustee who will then sell it and use the money to pay off the debts. In this process the consumer may end up loosing his house. Those consumers who are ill informed about debt related facts may become victims of zombie debt collection.
Debt Settlement:
Between debt settlement and bankruptcy the former is always preferred. The advantages of debt settlement weighed in a balance are seen to be far more than bankruptcy, even though the two are legal options.
Debt settlement involves negotiating repayment terms with the creditors and also makes the latter reduce the debt burden by more than half. There are many cases where the consumers got their debt reduced by 80%. The remaining amount can be paid in installments the amount and time of commencement of which is also decided in the negotiation and settlement process.
This not only relieves the consumer of a chunk of his debt, it also gives him enough time to repay and build up his financial stability at the same time. Therefore it can be seen that although debt settlement does not eliminate the entire debt amount like bankruptcy does, it is certainly a better option of debt relief.
The only disadvantage of debt settlement is that a person may fall into the trap of an illegitimate settlement company. Therefore, a consumer should look in proper places and consult financial advisors before approaching a settlement company for help.
Debt settlement and bankruptcy are both dreaded by the creditors. In each case the creditors lose money. While settlement has some benefit guaranteed to both parties, bankruptcy is a situation of complete loss. Even in the times of crisis that the economy is facing at the moment, the federal government is promoting debt settlement more than any other relief option.
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Check it out: Debt Settlement and Bankruptcy – How Do They Resolve Your Debt?
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