Bankruptcy vs. Debt Consolidation vs. Debt Settlement

Read More About Debt Consolidation

There are two types of bankrupties that most consumers file. A chapter 7 or a chapter 13.

A chapter 7 is the wipeout that most people associate with filing a personal BK. The laws changed in 2005 and it is now more difficult to qualify.

A chapter 13 is a 3-5 year repayment plan where the courts will determine how much you can pay (based on a calculated discretionary income) YOU MAY HAVE TO PAY OFF ALL OF YOUR DEBT. Only save interest and late fees. A bankrupty will affect your credit for 8-10 years, even the courts view this a last resort after reviewing all other alternatives. Bankruptcies with attorney document preparation, filing and court representation will cost several thousand dollars (two to four) on average. The cost of an attorney for a chapter 13 would have paid a good percentage (15-20%) of the total costs for an average debt settlement client.

Debt Consolidation is a program where you make one monthly payment to a company and they disburse it to your creditors. They typically lower your interest rate and the program is for an average of 7 years. Approximately 75% of the people who enter these type of programs never complete them. The companies who set you up in these programs earn most of their fees from the CREDIT CARD COMPANIES.

Your third option is Debt Settlement. Most companies are charging you a total cost of over 65% with no legal fees included. Click on the link and go to FAQ (Frequently Asked Questions) to fully understand why they are charging outrageous fees with no legal representation. There is one program out there, which is directly with an attorney with a total cost of 55% which also includes legal fees and court appearances as required.

Bankruptcy obviously has the worst effect on your credit. It will appear on your credit report for 8 to 10 years. Debt Consolidation is also a black mark on your credit due to the fact you could not fulfill your original contractural agreement.
With Debt Settlement your credit score will decrease significantly in the short term (As you will pay the Attorney instead of your creditors). Once your accounts are settled or eliminated your scores will increase. Restoring or cleaning your credit is fairly simple once your accounts are closed. Most companies do not offer this service with the settlement. WHY NOT ?

Credit Repair is fairly inexpensive and not that hard to learn, I have never understood the mentality of most companies that do not offer a complete solution to their clients.

A few other important points about debt settlement are as follow. One, you cannot use any accounts after you put them into a settlement program as you will quit paying them and will pay into a trust account (Should be a third party account not directly affiliated with the settlement company or Attorney you are dealing with). Two, you should keep out one or two low balance credit cards to use in case of emergancy while you are in any settlement program.

When you quit paying your creditors the following will happen: after you are ninety days late, your accounts will be closed. After at least 180 days, your accounts will go to a collection agency. You will be deluged with calls during the process. It is not always best to have the attorney or debt settlement contact your creditors immediately upon starting up a settlement program due to the fact that some of them may immediately begin legal action against you.

Article Source: http://depositarticles.com/

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