Articles NEWS

What is the difference bankruptcy or debt settlement?

Published by admin on March 16, 2010

What is the difference bankruptcy or debt settlement?

Debt is right now part of every day life of most of the people, but in case a person has too much debt, he will start finding life very difficult to deal with. In this article we are going to present you two different solutions to your debt problems. You can either file for bankruptcy or you could simply use a debt settlement company to reduce your current debt. Before you are going to select one option, you should be first know exactly what are the pros and the cons of each of the two options that you have available.

First: Determine how your debt problem occurred.

You can do that by requesting a copy of your credit report which should be given by all the 3 major credit reporting agencies of US: Expertian, Equifax and TransUnion.

The next thing you have to do is to review the credit reports and check if there are any inaccuracies like: incorrect information, accounts that do not belong to you, or balances left open even tough you have paid them in full. And it is also very important that you know your FICO credit score.

The next step is to know exactly how much debt you have. You can do that by adding up all the balances of your accounts, here you can include both: the secured and unsecured loans.

Now that you know exactly what your current financial situation is, you can now use this kind of information to take the right decision and select the option which is going to best suit your current situation.

Here we are going to present you the main differences between debt settlement and bankruptcy:

- Bankruptcy is going to have a more negative on your credit score compared to debt settlement. Usually the moment you file bankruptcy you will have that following you wherever you go for the next 10 years after you file it, while the effects of a debt settlement program is only going to be on your credit report 3-4 years and it’s not considered by the lending companies to be that bad.

- When you will fill bankruptcy you will be able to get rid of most debt, while at a debt settlement program, you will usually have your debt reduced by 40-60% and the rest of the money you will still have to pay. So the difference is more money in your pocket right now on the short term, but on a long term things will not look that good.

- Both options (debt settlement and bankruptcy) will cost you some money. This means that in case you want to file bankruptcy you will have to pay some fees along with the attorney fees which are very consistent. And for debt settlement you will still have to pay 30-40% of the outstanding balances.

We suggest that before you are going to select an option that is going to get you out of debt, you should definitely ask for a price estimate for using every get out of debt method. And after that you can select the cheapest and the one that you think is going to give you the most benefits.

Readers Rating: