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Debt Settlement and Bankruptcy

Posted on 15, Oct, 2012


The sad fallout from the global property and financial boom is the depressing spectacle of seeing millions of people from all walks of life struggling with a level of debt they never expected to have to deal with. If you're like most people you probably feel almost paralyzed by watching that debt slowly mount and you don't even get any rest from the worry of it all while you're asleep - if you can sleep that is!

Sitting there paralyzed by fear won't solve the problem for you and the sooner you start doing something about your debt problem the sooner you'll have actionable steps you can follow to deal with your debt issue once and for all. This can be achieved either through declaring bankruptcy or involving a debt settlement company to help reduce your overall debt level.

Before you consider either of the above options you should first get a current copy of your credit report from TransUnion, Equifax and Experian - the 3 big credit companies in the United States. Go through every single detail of your credit report and ensure that all the details of any debt are 100% correct - be sure to take your time going through the report. You should also find out what your FICO score is at the moment because it also directly reflects your current credit rating - a FICO score of about 500 being average.

The next step to take is to sit down and go through all your income and expenditure and come up with a final balance and when you're doing this make sure to include everything from alimony payments to your weekly grocery shopping; leaving anything out is going to affect your final decision. If you have a balance left at the end of each month you could use this available cash to pay down your debt via a debt settlement company but if you're at a negative balance each month then bankruptcy might be your only option.

Bankruptcy Vs Debt Settlement

Bankruptcy itself is a form of debt settlement in that any debts that are dischargeable are discharged during this legal process. Most lenders will prefer you to declare bankruptcy because they can then "sell" your debt to somebody else and keep control of the situation. If you declare bankruptcy it can and will affect your credit score for up to 7 years so this is worth considering, the plus side obviously being that many of your debts will be simply written off. The fees for declaring bankruptcy include legal and filing.

If you decide to pursue the debt settlement option you need to be extremely careful which company you choose to manage this process for you because choosing the wrong company will leave you in the kind of financial mire that takes years to sort out. Debt settlement companies will basically negotiate on your behalf with the people you owe money to and reduce the overall amount due by anything up to a certain %. Most debtors will expect immediate payment of this reduced amount so be prepared to part with cash up-front as part of the debt settlement process - but DO NOT pay large fees to any debt settlement company in advance of them doing any work for you; only a shady company will ask you to do that.

When you deal with a debt settlement company your credit score will be directly affected again but once your debts are paid you'll notice your credit score starts to slowly improve. Please note that using a debt settlement company may prevent you from taking advantage of any debt forgiveness available from the IRS and again you should seek professional advice before entering into any financial contract with any debt settlement company.

Which approach you choose for dealing with your own debt will depend entirely on your current financial and personal circumstances but seeking professional advice on such matters is always a wise move.


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