Back in 2005 there was a turn around in the bankruptcy laws. This reform changed the laws making it much harder for a American to file Chapter 7. A Chapter 7 will completely wipe the slate clean of the debts owed. If someone does not pass the “means test” to be excepted for Chapter 7 then they will have to file a Chapter 13. With a Chapter 13 the court will assess your complete financial state of affairs to come to a determination how much you will be forced to pay back towards your debts over the course of five years.
As you can probably tell a Chapter 13 for most is not as nice of a deal as what a Chapter 7 is. This drives most individuals away from filing bankruptcy to look for other systems of credit card debt relief. One of the quickest growing and more attractive methods then becomes credit card debt settlement.
This is a method in which one must default on their unsecured debts’ while saving up the required money on the side, to then negotiate a one time settlement, at a much lowered amount from the original balance owed. While debt settlement does have a temporary harmful effect on someone’s credit rating, it is not anywhere near as harmful as bankruptcy. Settlement is not made a public record like bankruptcy.
A debtor can be expecting to save themselves roughly 50% of what the debt was originally. And look to have themselves become free of their debts within a matter of 2-3 years for some much sooner. Obviously making credit card debt settlement a much more attractive proposal than a Chapter 13 bankruptcy.
The fact that in many situations debtors will save more money with debt settlement, is almost reason enough. But then toss in the fact that it will take at most 3 years. When compared to a Chapter 13 bankruptcy that will take five. Plus settlement being a private issue and not made a public record for the rest of your life, as with a bankruptcy. Then of course the issue of the credit report, debt settlement looks a lot better than bankruptcy.
There are three ways that a debtor can settle the debts they owe. First off you can do it yourself, which is to a great extent advised against if you do not know how to negotiate properly. Then a debt settlement company can be hired to help settle someone’s debts. There are many honest debt settlement companies however one must due diligence on a company to make sure they are reputable and honest. Then you can contact a debt settlement attorney as well. You can get more protection utilizing a law firm, and the majority of the time they can work out lower settlements as well. And being that attorneys must be active members of their States Bar Association you get the additional protection in knowing that they must account to a higher authority. There are far less unethical operations that are law firms then debt settlement companies.
Joe Rodgers is a credit card debt analyst with the US Consumer Advocate, which practices in credit card debt reduction.
- Joe Rodgers
Highlights 
February 17th, 2008 