Experience With Debt Settlement Vs. Bankruptcy
Debt settlement and bankruptcy are two different ways of taking care of your personal debt. It is important to weigh your options and the aftermath of those options carefully before deciding how to deal with your debt load.
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What are the Goals of Debt Settlement and Bankruptcy?
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Debt settlement and bankruptcy essentially do the same thing: They "wipe clean" your unsecured debt. Unsecured debt is debt unsecured by any collateral, such as credit card debt or personal loans. Both debt settlement and bankruptcy pay off creditors in amounts less than what you initially owed.
What is Debt Settlement?
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Debt settlement is the process of attempting to "settle" with your creditors by offering them a sum of money to forgive the rest of your debt. There are many debt settlement companies that will do this for you, but you can also attempt to settle yourself. If you decide to hire a debt settlement company, make sure it is legitimate by checking with the Better Business Bureau before making any payments to the company.
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What is Personal Bankruptcy?
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Personal bankruptcy is declared through the government in a bankruptcy court. The court decides how you will pay off your debts to creditors in either a chapter 7 or chapter 13 bankruptcy case. The chapter 7 plan will liquidate and sell your assets while a chapter 13 plan will require you to make payments on your debts.
What Happens to Your Credit Score With Debt Settlement?
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Debt settlement does not affect your credit score. Keep in mind that making late payments or missing payments on any bills will lower your credit score. It's best to attempt to settle your debt before you are overdue.
What Happens to Your Credit Score With Bankruptcy?
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Personal bankruptcy stays on your credit report for up to 10 years from the date of discharge. During that time, it will be possible to get loans and credit; however, interest rates may be higher due to the bankruptcy on your credit report.
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