Bankruptcy

How Bankruptcy Is Not The Only Option For Debt Relief

When someone finds themselves buried in debt, they tend to panic and begin to consider filing for bankruptcy. You see ads for lawyers specializing in this kind of litigation on television and on radio all the time. Every ad makes it sound like the perfect solution to end all of your problems with debt.

While it would be wonderful to be able to start over with a clean slate, the truth of the matter is that while it may solve your problems now, it only leads to more problems later on in life

Defining Bankruptcy

When filing for legal relief from debt, you have two options at your disposal: Chapter 13 and Chapter 7. They are named in this manner because their names refer to the statutes under the current laws that are in force throughout the United States.

Chapter 13 allows a debtor to consolidate their debt and through the courts, negotiate for a payment plan that they can afford, without further recrimination from their creditors. Most often, the payments are made to a neutral third party and then passed on to the creditors in equal shares per month. This kind of legal debt relief is the most beneficial to both sides, as the debts get paid and the debtor is safe from further prosecution.

Chapter 7, on the other hand, is the legal remedy referred to as the “clean slate” statute. Through an advocate, you collect and summarize all of your existing debt, no matter what type, and place it all before the court to be vacated under the law. Your creditors will be notified as to your legal intent and they will have a regulated amount of time to protest the elimination of the debt you owe to them. Once done, they will have no recourse against you, unless the court rules with exceptions for particular debt, like mortgages. This is one of the most abused statutes however, since it allows for a re-filing every five to seven years.

Consequences

To start with, if you are behind on your debt, your credit report is not a happy one and your credit score has already been affected. Filing for bankruptcy is not an option that will correct any of that, even if you file Chapter 7. Any legal action on your part to erase debt will stay on your credit report for up to seven years, even if you chose to exercise Chapter 13, and are currently repaying your debt, for up to seven years.

A Better Alternative

Why go through all the legal drama and fees, when it would be much simpler and better for your credit to opt for debt settlement instead? It works in the same fashion, as Chapter 13 bankruptcy, but without the negative impact on your credit report. Through debt settlement, advocates will work on your behalf to negotiate with your creditors to draw up a repayment plan that you can afford, sometimes even reducing the amount of your debt considerably.