While nothing can replace filing bankruptcy as a solution to eliminating a large amount of debt, there are some alternatives. One alternative that has become popular over the recent years is debt settlement. Debt settlement is a way that an individual will offer the creditor less than what is owed. Over the last few years many people have tried using debt settlement to avoid filing bankruptcy. There are some pluses over a bankruptcy filing, but there are all many negatives also.
Most people who use debt settlement is a form of debt elimination think by settling their debts they won’t ruin their credit. The problem is if a person is already tapped out on all their available credit, their debt ratios are terrible and it will reduce their credit score by a large amount. So when trying to avoid a bankruptcy filing because of protecting their credit, it’s a little too late to do anything with that.
Another problem with debt settlement companies is they are unregulated and it’s kind the wild west out there. At least you know what should get when you file Chapter 7 bankruptcy. If you are represented by a bankruptcy attorney you will know how long the process will take and what to expect in the end. You will also know that all your unsecured debts will be wiped out and included in the bankruptcy discharge. With debt settlement, the debtor is at the mercy of the creditor as they have the final decision on whether or not to reduce the balance and by how much.
The bottom line is, debt settlement does have its place in the financial world, but it will never replace Chapter 7 bankruptcy as a way to reduce unsustainable debt. For someone that is struggling with their debt and looking for a way out before making the decision to sign a contract with a debt settlement company it is best for them to search all options including speaking with a bankruptcy attorney. Sometimes an attorney will show the benefits of filing bankruptcy for the individual’s personal situation. There are also times when the bankruptcy attorney will tell the individual that bankruptcy is not a viable solution for them. The decision to file bankruptcy is a very serious one and can impact one’s future if it is done when it is not necessary. In most cases, for someone that has a small amount of debt it is much better to negotiate the balance down with the creditors. Since you can only file Chapter 7 bankruptcy every eight years it is better to keep bankruptcy as their ace in the hole and use it when it is absolutely necessary.