We recently saw the movie The Life Of Pi. Most of its action takes place on a lifeboat that’s shared by a young man and a tiger. As you might imagine, the young man’s principal objective is to keep from being eaten alive. This made me think of people adrift in a lifeboat trying as hard as possible to keep from being eaten by their debt. If this is how you picture yourself or if you think of yourself as being crushed by a huge pile of debt, you may be considering either bankruptcy or debt settlement.
A chapter 7 bankruptcy
If you were to decide to file for a chapter 7 bankruptcy, this would discharge most of your unsecured debts including credit card debts, personal loans and medical bills. However, it would not discharge student loan debt, alimony or child support or past-due taxes. A chapter 7 is called a liquidation bankruptcy because its purpose is to liquidate your assets so they can be used to pay off your debts.
In contrast, debt settlement cannot discharge your unsecured debts but does offer a way to get out of debt in a reasonable amount of time and without stiffing your creditors. The way it works is that you hire a professional debt settlement company to contact your creditors and settle your debts. Then instead of paying your creditors you send the debt settlement company a check each month, which is deposited into a trust account. Once all your creditors agree to settle, the money is used to pay them off.
The advantages and disadvantages of declaring bankruptcy
As noted above, the biggest advantage or benefit of filing for bankruptcy is that you get rid of almost all of your unsecured debts, probably in 4 to 5 months. Once you file for bankruptcy, your creditors will mot be allowed to contact you so you’ll no longer be harassed by annoying debt collectors or credit card companies. You’ll most likely be allowed to keep your house, car, clothing and furniture and any tools required in your job. However, you could lose some of your other personal possessions as they would be seized and sold off to help pay your creditors.
The pros and cons of debt settlement
Like filing for bankruptcy, debt settlement can help you get rid of your unsecured debts but does take longer and costs money. For example, in most cases we help our clients become debt free in 24 to 48 months, which is certainly longer than would a Chapter 7 bankruptcy. However, with debt settlement your creditors do get paid a large part of what you owe instead of getting nothing.
Bankruptcy, debt settlement and your credit report
While both a chapter 7 bankruptcy and debt settlement will have an effect on your credit report, the impact of a bankruptcy will be much more severe. Once you file for bankruptcy, you will probably not be able to buy a house or a car for several years and it will stay in your credit report for 10 years. Since a chapter 7 bankruptcy is a public record, anyone can see that you have had one. This includes potential employers, mortgage companies and landlords. Some employers simply will not hire a person who has had a bankruptcy because they believe it shows poor character.
The reason why debt settlement will have a negative impact on your credit report is because of those five or six months when you weren’t making any payments on your unsecured debts. Your creditors will have reported this to the credit bureaus and that could hinder you from getting new credit. However, once your debts have been settled, they will be marked “ Account paid in full but for less than balance owed”. This may not seem great but it is much better than it showing them as having been charged off as bad debt, which would be in the case if you had a bankruptcy.
We’ve helped thousands of American families
We’ve helped thousands of American families by settling their debts for them. In most cases, we have saved them thousands of dollars and helped them become debt free –in a reasonable amount of time. Don’t get eaten by that tiger of debt. Call our toll-free number today so we can get started helping you.