Debt settlement and bankruptcy are two options to clear your debt and improve your financial situations. Although bankruptcy can remain on your credit report for seven to 10 years, debt settlement also has adverse implications to your credit. The pros and cons of each depend on your financial situation and goals.
Debt settlement can come in several different types:
nterest reduction: Negotiating with creditors can result in interest rate reductions, reducing your payments and the total debt over time. This can assist in paying debt without a huge drop in your credit rating.
Debt settlement: This is when you call or visit with creditors to reduce the overall total of the debt you owe. In most cases, this will require a cash payout or a structured payback plan.
Bankruptcy usually occurs in one of the two options.
Chapter 7: A total liquidation of assets.
The debtor sells and pays off as much of the debt as possible and writes off the rest. This is used most often for individuals rather than businesses.
Chapter 13: More like a repayment plan.
The person who owes the money gets to keep his assets while a court-ordered repayment plan for all or part of the debt is set up.
The benefits of debt settlement are:• Although it damages credit, steps can be taken such as negotiating with the creditor to remove the debt or note it resolved on your credit report to lessen the damage of a default notice.
• It does not stay on your credit report as long as a bankruptcy.
• It shows future creditors you tried to meet your obligations The benefits of bankruptcy are:• Total debt elimination can give you a new start.
• Government-structured payment can eliminate lawsuits from creditors.
• Stress relief.