Debt Settlement vs. Bankruptcy

With the change in bankruptcy laws and an increasing number of people facing financial hardships, more and more people are turning to debt settlement in the hopes of reducing their debt load, and repairing their credit. However, this may not be the best option for many people.
How They Affect Your Credit Report
Your credit standing determines your ability to obtain a loan, reasonable utility deposits, cell phone service, housing, and even a job in some circumstances. Keeping your credit score up is the best option, but sometimes, things occur that make it impossible. Repairing credit can be stressful, and is one of the reasons people seek out information on debt relief options. Both bankruptcy and debt settlement plans can affect your overall credit report.
Debt Settlement – How the creditors report to the credit agencies will determine how this option will affect your credit report. In the event they report that the debt was paid in full, only the past delinquency will remain to negatively affect the score. However, if the creditor reports it as settled for less than owed, the score will be negatively affected for up to seven years. Sometimes, creditors fail to report the change in status at all, so you have to be diligent.  You will need an attorney to follow through.
Bankruptcy – Many people worry about post-bankruptcy credit. Though it does affect a credit score, it may have less impact than you think. Bankruptcy removes nearly all debt, and is usually settled relatively quickly. In fact, many people are able to obtain a new loan with reasonable interest rates in as little as two years after the bankruptcy takes effect.
How Do They Add Up, Cost Wise?
If money were no issue, there would be no need for people to look for debt relief options, so certainly cost is a big factor when determining which option fits your personal needs. Both Bankruptcy and debt settlement have costs that should be considered.
Debt Settlement – Including the agreed upon amounts, continued interest accumulation, and associated fees, this option can be the costliest. These costs are spread over a set amount of time, reducing the monthly burden. The interest rate could be lower than the individual creditors were charging. The debt could take a long while to pay off, however, and could cost more than expected in the long run.
Bankruptcy – This option removes most debt entirely, with a few exceptions, such as student loans, mortgages and car loans (if you want to keep the home and car). There will be a filing cost and attorney fees, but the process can be made less complicated and stressful with a good bankruptcy attorney to guide you. The bankruptcy costs will be determined upfront.  There will be a set end time of immediate debt relief and case confirmation in four months.
Which option is right for you will be determined by your current financial situation and choices.  Those who experienced a temporary reduction in income, but have since returned to near normal income, may find that debt settlement is the right way to go. However, those who are in financial trouble, where repaying even reduced debts will cause undue hardship, will likely benefit more from filing bankruptcy.
Those who are considering debt consolidation or settlement should know their options and speak to an experienced lawyer to find the best relief option for their personal situation. For more information, or to request a debt relief consultation in the Philadelphia and surrounding areas, contact William D. Schroeder, Jr., Attorney at Law.