Bankruptcy is an option for getting out of debt offered to citizens of the United States who are faced with a serious financial crisis. Although both Chapter 7 and Chapter 13 bankruptcy can be extremely beneficial, there are some negative aspects of this solution as well. Unfortunately, due to the high amount of fraud over the years that consisted of people filing and being approved for bankruptcy that should not have qualified, this government program for eliminating debt has been plagued by exaggerated horror stories.

We want to address a few downsides associated with filing for personal and business financial protection, followed by focusing on the top reasons why it makes perfect sense. One concern, when filing for Chapter 7 bankruptcy, the negative record of having gone through this process would remain on your credit report for seven years and when filing for Chapter 13, it would take ten years for it to be removed from the report. From a seller’s perspective, this reduces your creditworthiness and puts you in a high risk category.

Another downside to bankruptcy is the financial investment. For instance, you would be required to pay a filing fee, any cost connected with credit counseling, which is now mandatory under the new “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005″, and any attorney fees if legal assistance for any part of the bankruptcy filing was needed. Depending on the type of bankruptcy and severity of debt, the total would run anywhere from $350 to $800. Although a few other things would be considered negative, these two are the main issues.

Filing for bankruptcy also offers a number of benefits, which is the reason people go through this process in the first place. If you are in a situation whereby you cannot meet your financial obligations, regardless of the reason why, based on a specific formula used for qualification, a credit counselor or bankruptcy attorney could tell you if you are a good candidate under the new 2005 bankruptcy laws. If you were, bankruptcy protection would provide the opportunity for a fresh start.

Additionally, even though the bankruptcy would stay on your credit report for up to ten years, often when creditors see that a person has had debt discharged through a bankruptcy, they are actually more willing to extend credit than prior to filing. The reason is that creditors know legally, the individual would not be able to file for bankruptcy again for a long time. Therefore, you could expect to receive several credit offers, especially from credit card companies. This would help in rebuilding credit but more than ever before, it would be critical that you be careful to avoid ending up in another financial mess.

Then as mentioned, another positive aspect of filing for personal and business bankruptcy protection is getting out of debt. Even if you were required to pay some creditors, the level of stress relief is tremendous. When people are constantly stressed with debt, marriages suffer, job quality and production is affected, health problems can arise, and everything in life becomes more serious and hopeless. Being able to get out from under this debt is not a miracle cure but it certainly changes the dynamics of everyday life for the better.

The recent economic slump has hit the US hard, especially with mounting consumer debt figures. A large number of consumers struggling with huge debt burdens file for bankruptcy every single day. The rising bankruptcy rate in the country is indeed alarming for the creditors, debtors and the economy alike. Considering the harmful impact that bankruptcy causes on your credit report, the decision to file for bankruptcy should be taken only when all other debt relief options fail to work in your favor.

Why avoid bankruptcy?

Bankruptcy does have its set of merits and demerits. There is no denying the fact that it is possibly the best legal method to eradicate your insurmountable obligations through liquidation of your non-exempt assets or through debt restructuring. It is equally true that bankruptcy offers you a fresh chance to rebuild your finances all over again. Nevertheless, you possibly cannot undermine the 10-year-blemish that it leaves on your credit report. Life could be really tough with thwarted future possibilities of obtaining loan after bankruptcy.

Settle debts instead

If you are feeling at your wits’ end with enormous credit card debt burdens on your shoulders and the thought of bankruptcy is taking a toll on your mind, then it is wiser to look for a sensible alternative. Bankruptcy is often a psychological relief rather than a wise decision, especially when you can still take control of your situation. Instead of risking your credit scores for a decade, you can consider settling your debts. Debt settlement is regarded as one of the safest alternatives to bankruptcy.

How to settle your debts?

Debt settlement is a debt relief program, where the creditor agrees to accept a reduced amount from you, which is considered full payment of the obligation. But the key to a successful debt settlement is proper negotiation with the creditor. Effective negotiation can get your debts reduced even up to 60%.

You can get your debts settled either by negotiating directly with your creditors or you can sign up with a reputable Better Business Bureau accredited debt settlement firm. Settlement firms are professional bodies that take care of your debt issues in return for a payment. Usually, the companies’ skilled debt arbitrators are adept at reaching successful debt settlements for the clients.

Tips on settling the debts yourself

However, if you want to avoid all the added costs of hiring professional help for getting your job done, then you can surely help yourself. Here are a few negotiating tips for you:

•    Update yourself about the existing credit card laws in your state in order to strengthen your position.

•    Inform your creditor that you are financially strapped and looking forward to settling your debts.

•    Also politely let your creditor know that if your settlement proposal is declined then you will be left with no choice other than filing for bankruptcy. It often works as your creditor knows that while a bankrupt debt is a lost venture, debt settlement is a profitable offer.

•    Offer a lump-sum as settlement amount to coax your creditor into settlement. But do not settle on anything more than 50% of the outstanding amount.

•    Once the negotiation is over decide with your creditor regarding the mode of payment, that it a single payment or installments.

•    After the settlement is over, make sure your creditor reports your settled accounts to the credit bureaus so your credit scores are boosted.

Debt settlement is a great way to evade the pitfalls of bankruptcy. It not only makes way to a good credit report for you but also restores the peace for you and your loved ones.

Prior to 2005, filing for bankruptcy was a much easier process. In fact, for people with less complicated cases, “bankruptcy kits” could be downloaded from online and handled by the person without assistance of an attorney. Unfortunately, because criteria for qualification and control over cases being pushed through was so lax, fraud became a serious problem. Fraud grew to such great proportions that the United States Government realized something drastic had to occur to stop or at least reduce the problem.

In 2005, the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005″ was passed by Congress, being one of the largest laws enacted specific to finance. The rules established within this Act are somewhat complex and for people to qualify for bankruptcy, whether Chapter 7 or Chapter 13, going through the process now requires the services of an attorney who specializes in this area. To be successful with the bankruptcy filing but also to avoid common but also costly mistakes, it is essential to work with the right attorney but most people have no clue what to look for or the questions to ask.

We wanted to provide a few helpful tips for hiring a bankruptcy attorney to ensure the person is right for the person and the type of filing. Most attorneys that advertise bankruptcy assistance do in fact have the required skill, knowledge, and training to be beneficial to the client but unfortunately, some attorneys have seen the vast number of consumers now filing as an opportunity to charge outrageous fees or advertise they have the appropriate expertise but without ever having filed a case.

Therefore, someone needing this type of legal assistance should never assume anything but take time to research various attorneys before signing a legal contract. With the following tips, the pain of bankruptcy could be lessened.

•    Experience – Any attorney being considered to assist with a bankruptcy case should have at minimum five years experience practicing law in this venue. Although the new laws are now understood, bankruptcy laws are still modified and changed so the attorney should be up-to-date on all current laws to include exemptions, the court system, and trustees.

•    Credentials – In addition to having the necessary experience, a good bankruptcy attorney should be able to present credentials of good standing. Typically, credentials are seen on the walls in an attorney’s office to include a license from passing the state bar, a certificate from the American Bankruptcy Institution and/or a certificate showing the attorney to be a member of NACBA, or National Association of Consumer Bankruptcy Attorneys. Of the various credentials, the license and certificate from NACBA are the most important, providing peace of mind to the person filing that the attorney is current on all laws pertaining to bankruptcy.

•    Law Firm – Although a good bankruptcy attorney may work as a standalone lawyer, most are associated with law firms. When associated with a law firm, it is common practice for a paralegal and/or junior attorney to do a significant portion of the work of paying clients. Therefore, when researching possibilities for bankruptcy attorneys that work in a law firm, not only should the attorney be considered, but the firm as a whole.

•    Current Case Load – The best bankruptcy attorneys typically have the heaviest case loads but even so, it would be important to understand ahead of time just how heavy of a load a specific attorney is carrying. Of course, if an attorney has a huge number of current clients, more than likely a new bankruptcy case is not going to take priority or there would be risk of the case not getting the attention it deserves.

•    Convenience – Finally, even the busiest and most sought after bankruptcy attorney should be available to the client. Yes, there will be many times when the attorney is in court, travel, or in consultation with another client but the attorney should make time to address all client’s needs and questions or at least have a qualified representative talk to the client on his behalf.

Bankruptcy is not something anyone wants to think about but sometimes it is the most fitting solution to overwhelming financial difficulties. If you find yourself dealing with a mountain of debt then you may wonder if the time has come for you to file for bankruptcy. Bankruptcies in the United States fall into two categories- there are chapter 7 bankruptcies and chapter 13 bankruptcies. While filing for bankruptcies comes with some less than enviable consequences it is sometimes the most responsible action to take. Here we examine the advantages of filing and then turn things around and look at the disadvantages. It is important to closely examine both sides of the bankruptcy coin before you decide what you should do in regards to your set of circumstances.

When Filing is a Good Idea

There are cases where filing may be very much in your best interests. For example if the debts you owe exceed the assets you have then filing may be the only option you are left with. Some people get in over their head with their debts and before they know it what they owe far exceeds how much they earn as well as how much they have in savings. If paying your debts has got you worrying about how you are going to have enough money left over to pay your rent or feed your family then it’s time to file for bankruptcy.

Some creditors are not very understanding when it comes to money that is owed to them. If you have done everything in your power to work out a repayment plan with your creditor(s) and they have turned a deaf ear to you and are not willing to negotiate then it is time to think about filing. If you are already struggling to make ends meet then filing for bankruptcy can take some of the pressure off of you.

Some people hesitate to file for bankruptcy because they are worried that the money they have built up in their IRAs (Individual Retirement Accounts) will be taken from them as they have heard that all of their assets will be seized upon filing. You can rest easy because IRAs cannot be touched when a bankruptcy takes place. As of 2005 the Supreme Court brought down legislation that stated that federal bankruptcy laws will shield all IRAs from creditors when a bankruptcy is in progress.

When Filing is a Bad Idea

There is a negative side to filing for bankruptcy. As previously mentioned, it can have its consequences that lean towards the negative side.

Filing for bankruptcy may be about your financial situation but it can have a strong impact on your personal life. It can negatively affect your self-esteem which in turn can causes problems to develop in your personal relationships. It is not uncommon for a person to feel “bankrupt” in their life after they have filed. They feel as though they have failed themselves as well as failed their families and they have no idea how they will improve the state of their finances. Before you go ahead and file for bankruptcy think about how it will affect you in a personal way.

Many individuals worry that filing for bankruptcy will have a serious impact on their ability to borrow money, whether it be a line of credit (LOC) at their financial institution, a credit card or a loan. Filing can affect your spending habits and the lifestyle you have become accustomed to if you tend to rely on a credit card a lot. While it is true that your ability to borrow will be affected for several years this does not mean that it will be completely impossible to do so.

Another very real concern is that filing for bankruptcy will seriously affect a person’s credit rating. This is the case and can be one of the most devastating negative consequences that a would-be bankruptcy filer has to cope with. According to the Fair Credit Reporting Act, credit agencies are permitted by law to keep a bankruptcy on their reports for up to 10 years if they so wish to. Filing for bankruptcy will affect your ability to obtain credit for a number of years. It might even affect your ability to rent an apartment or find a new job. This can be a tough pill for those facing financial troubles to swallow.

What to Expect of a Bankruptcy

If after careful reflection and the weighing of both sides you do decide to file for bankruptcy then it is wise to request that you be sent a copy of your credit report both before you file as well as afterwards to ensure that the information in it is accurate and up-to-date. In the United States there are three major credit bureaus or agencies. These agencies are Equifax, Experian and TransUnion. All three of these agencies routinely report information to each other which is why it is only necessary for you to contact one of them as opposed to all three. If you do find any errors in the report then report them immediately and request that corrections be made.

What many people are not aware of is that bankruptcies are not as private as they may think (or hope!). They are a matter of public record. What this means is that anyone who wishes to obtain a copy of your bankruptcy file can do just that. While the information will not be splashed across the local newspaper, others can still find it if they wish to. This is something important to bear in mind.

Be aware that after you have been discharged from bankruptcy you may, as mentioned above, find it more difficult to obtain financing for everything from a car, to a home to a new business. This is because most financial institutions are not eager to extend unsecured loans to those who have filed for bankruptcies. This is because your financial problems in the past send a red flag to the bank that you are a greater risk. One thing some banks will do to lessen the risk on them is to request a larger down payment on a mortgage or impose a higher interest rate on a loan you apply for, such as a car loan, business loan or personal loan. The downside to you is that this means you end up having to pay more money out on whatever form of credit you are seeking.

It is important to stop here and make mention of the fact that filing for bankruptcy is not a free financial ride. There are costs attached to filing for bankruptcy. In most instances it will cost you a couple of hundred dollars. Some trustees for bankruptcy may make you pay a lump sum payment while others will require regular monthly payments. If you decide to hire a lawyer to represent you and to make sure that your rights are well protected then it will cost you even more money. While it is not a requirement to retain the services of an attorney when you file for bankruptcy it is probably a very good idea if you can afford it.

Before you make the decision to file you might want to speak with a financial advisor or a credit counselor. If there is a way to repair your financial woes by doing something other than taking the bankruptcy route then it is worth exploring. Always weight the pros and cons of each side carefully before the final decision is made.

Bankruptcy is defined as the inability to repay one’s debts. The debt can be discharged by filing bankruptcy and either discharging the debt or making reorganization arrangements for the remaining amassed debt. Bankruptcy is governed by the Federal Government in the United States and all cases must be declared in the United States Bankruptcy Court. There are many laws associated with bankruptcy. While a petitioner may not file for bankruptcy with their respective state due to federal jurisdiction, most individual state laws will determine a filings outcome and the respective procedures involved. The matter is mostly handled outside of a courtroom and is primarily administrative.

The debtor must file a petition and declare all assets, liabilities, income and provide all information relating to amounts owed to creditors. By filing a petition the debtor is then able to stop further actions from creditors until such time as the bankruptcy filing is heard in court. This is commonly known as a ‘stay’. The debtor can either make arrangements for new repayment of debt or liquidation of the debtors’ assets. The debt is then discharged if there are no assets upon which the creditors can make claims for repayment.

April 25, 2005 President George W. Bush made significant changes to the Bankruptcy Code by signing into law the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). The changes apply only to cases filed after October 17, 2005. The bankruptcy law was changed to allow for clearer rules and expanded responsibilities to the United States Trustees Program.

All debtors must also seek credit counseling if they wish to file bankruptcy. This is a new requirement since the change in the law. By requiring this step, the debtor can determine if they do indeed need to file for bankruptcy or whether a non-formal repayment plan may be an option. The debtor must complete a 90 minute session with an approved debt counselor six months before filing for bankruptcy. Debt reduction classes may also be required at the debtors’ expense.

The law also requires you to pass a means test if you wish to file for Chapter 7 bankruptcy. The means test is determined by a formula exempting certain debts (such as food, rent, etc.). It will determine if you can pay 25 percent of non-priority unsecured debt. Such debt usually arises from credit card debt. The 2005 law makes abuse of bankruptcy laws much harder. Filings in certain cases are more complicated requiring additional steps, such as credit counseling, because of these new laws.

There are two main types of bankruptcy filings, Chapter 7 and Chapter 13. Both proceedings may be entered into voluntarily by the petitioner or filed by the creditor seeking to collect on owed debts. The difference between Chapter 7 filings and Chapter 13 are significant. In Chapter 7 filings the debtors assets are liquidated and most of the remaining debt is written off. Thus the term ‘fresh start’ is commonly used.

In Chapter 13 filings the debtor is placed on a five year repayment plan. If there is remaining debt it is not considered for repayment. More people are forced to file Chapter 13 versus Chapter 7, reducing the amount of abuse of the bankruptcy laws.

Deciding to File for Bankruptcy Protection is not easy. Most people want to know…

Millions of people in the United States face financial challenges every year. However, with the most recent financial crisis of 2007 and 2008, the country has been devastated. People have not only lost jobs, but also homes, vehicles, and other assets while still trying to deal with financial responsibility to creditors. Other times, people face financial struggles after a divorce, death of a spouse, or even failure of a business. Although bankruptcy should always be considered as the last resort, it is a government program available when needed.

According to bankruptcy rules, this legal procedure makes it possible for debt to be discharged whereby money owed to creditors would be erased. In addition to personal bankruptcy protection, businesses and organizations can file for bankruptcy protection as well. Bankruptcy serves two primary purposes – eliminating debt whereby the debtor is given the opportunity for a fresh start and paying creditors as much money possible from the debtor’s bankruptcy estate without causing serious burden to the debtor.

The type of bankruptcy filed would depend on financial situation, income versus debt ratio, and amount of debt owed.

File Chapter 7 Bankruptcy

According to new bankruptcy rules, a Chapter 7 filing involves liquidation of debt, a process that can take up to six months to complete. In this case, the debtor would maintain some property deemed acceptable under the “exempt property” criteria while the rest of the unsecured property, if any, would be sold by the trustee of the bankruptcy case to help pay debt to creditors. However, the actual amount owed to the creditors would be based on bankruptcy laws, which vary from state to state.

File Chapter 13 Bankruptcy

For this type of bankruptcy, a person with regular income could have debt to creditors adjusted. However, to quality according to the new bankruptcy laws, the debtor’s income could not be greater than the state’s median and the debtor would be required to complete a “means test”, which is based on its own set of requirements.

For the question, “Should I file bankruptcy”, the answer is typically not an easy one. People who end up filing for protection have exhausted all other possibilities, realizing the only way out of the dire situation is with bankruptcy. This particular government program is something utilized all the time, so for the person, business, or organization that makes the decision to file for bankruptcy protection, there is no reason to feel ashamed, embarrassed, or even defeated.

Regardless of the situation or the type of bankruptcy files, it is important that the new bankruptcy laws under the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005″ be fully understood. A tremendous amount of information can be found through the Internal Revenue Service website but if needed, a bankruptcy attorney would be able to provide more in-depth answers and guidance throughout the process.

There are a number of alternatives to filing bankruptcy. There are numerous decisions to be made with whatever your course of action. The absolute worst decision you can make about bankruptcy, debt and financial concerns is to make no decision at all.

Financial matters frequently paralyze people when it comes to decision-making. You should understand this and have a firm grip on the fact that your financial difficulties will not go away if you ignore them. What may seem like a good idea just to ignore them only compounds the problem in the future. Seek counsel from those people you trust, from bankruptcy lawyers, from financial counselors, or debt counselors.

The people you choose to listen to will have a direct impact on your future course of action, so choose those people wisely. Not everyone who claims to know about financial matters, including bankruptcy, really know what they are talking about. Although the decisions that you make will be difficult, the stress relief from getting a process started can be rather liberating. When you know that you have a plan to recover from your financial situation, you will be better able to focus on your future.

If you are in the position that you and your spouse are quickly headed toward a divorce but also have a mountain of debt between the two of you, you might be wondering what your choices are going to be.

That mountain of debt is likely to get even harder to handle when you divorce, so it might be better to file for bankruptcy before you file the divorce papers. By filing bankruptcy first it will allow your divorce to proceed more smoothly and some of the debt to be handled for a cleaner break for the two of you.

Even if you can’t be rid of all your debts with the bankruptcy, you will have a better idea of how to handle the remaining debts. It will also mean that if your ex-partner files for bankruptcy again later on, you are protected because your joint debts have already been taken care of before the divorce.

Here is how the process will work. When one or both partners in a marriage file for bankruptcy all of the property that is shared between the two will become part of an estate that is used to pay off the debt.

Filing a bankruptcy also grants you an automatic stay, meaning that creditors cannot call you and ask for money anymore because the court is handling it. Also remember that this stay does not mean that during the divorce any child or spousal support that is ordered doesn’t have to be paid, it still does.

The next step is that the court decides which property is exempt from bankruptcy, so it cannot be sold to pay off your debts. Once this step has been done then you can safely file your divorce papers and the exempted property will be divided between you in arbitration.

Keep in mind that if you are in the middle of a bankruptcy but also trying to negotiate property settlements, that is a lot of complicated issues to handle at once. Some debts related to property settlement may not ultimately be paid under the bankruptcy, so you need to make sure that those debts still get paid.

If you cannot afford to pay the debt they may still be able to be wiped out, but only if you can prove that you cannot pay the debt and still take care of yourself or your family. You can also get a debt wiped out if you can show that it would be less harmful to you for the debt to be wiped out than the harm done to the creditors if it is not paid.

One final thing to keep in mind, if you believe that your spouse might consider filing for bankruptcy after a divorce is finalized, you have to be sure that your finances are in order or you may end up paying even more debts then.

Many consumers have heard of consolidation loans or debt reduction loans. These are quite basically the same thing and both can help you get out of debt. However, they will only assist you with your debt if they are the right solution for you and if you use it the correct way. Using a debt reduction loan could put you in an even worse situation, so research carefully before deciding on taking action.

The way debt reduction loans work is a very simple and straightforward process. They loan takes all of your balance, usually the ones with very high interest rates, and roll all of those balances to a single loan. Then you are only concerned with repaying one loan and worrying about a single interest rate.

In many cases the consolidation loan that you get will have a lower interest rate that the other individual debts. Because the interest rate is lower the payment on the single consolidation loan will often be lower than the previous payments combined as well. So on these few things alone getting a debt reduction loan seems like a win-win situation for your debt. It just might be but there are a few things to keep an eye out for that can make a debt consolidation loan work out very badly.

When you start making payments on your new consolidation loan you should notice that the payments are lower. The best way to handle your loan is to try and put some of the money you were previously using for your individual balances to pay more than the minimum payment on the debt reduction loan. Paying more than required means that your balance will get paid off sooner and you’ll be paying less in interest overall. Paying just the minimum would mean that you end up in debt for just as long as you would have without the loan.

The thing that mostly typically goes wrong with debt consolidation loans is that the temptation to use those newly balance free credit cards on your next shopping trip. This will only put you back in even worse trouble than you started with because you will have to pay the consolidation loan and a brand new balance. Statistics show that a large majority of consumers who employ a debt consolidation loan will have a new credit card in about half a year. But if those cards are closed and not available then it may be easier to not pull out the plastic for anything.

It is vital to look closely at your spending habits before the consolidation loan or else it might not be helpful. Credit cards are not inherently bad news but you have to address how to use them properly and how you got yourself into trouble or a consolidation loan won’t help.

Millions of Americans are finding themselves in debt and getting out of debt is never easy. It is important that you build for your future, and that means finding a method to get yourself out of debt as soon as possible. That is the hard part for many people. Getting into debt generally happens much more quickly than getting out of debt.

You must have a basic understanding of what it is and how it works. It is the ambition of many creditors to keep consumers in debt. The longer that you are making payments, the better it is for your creditors. The opposite is true for your own financial situation.

Not everyone who has debts needs to get out of debt. If you are currently making your mortgage payments, car payments, and are able to pay off your credit cards in full each month, you may not need to get out of debt.

If you are unable to make monthly payments, or are only able to make minimum payments on your credit card debt, you are on the threshold of debt becoming a focal point in your family’s financial scenario. As stated this is the ideal scenario for creditors. The weight and stress of that debt will eventually catch up with any borrower.

Most debt generally fits into two categories or types. There is non-consumer debt and consumer debt. Non consumer debts are debts that are generally attached to an asset that tend to appreciate in value, such as your home or other real estate. The more common non-consumer debt is your mortgage or home-equity loan.

Consumer debts on the other hand are often incurred from everyday spending on goods and services. These would apply to your credit cards, auto loans, personal loans, and loans made for general purposes such as appliances and other consumer debt.

While it will not feel like it for the person who is in debt debts are classified as good debt or bad debt. The non-consumer debts are defined as good debt because of their low interest rates, tax advantages, and of course the collateral that tends to appreciate in value.

There is no debate about what type of bad debt is the worst debt. That would be credit card debt. Credit cards require you to make a minimum monthly payment equal to about 3% of your balance in order to keep using your card.

Remember what we said about creditors, this is where they want to keep their customers. If your credit card balances $2500 is likely that your payment at the end of each month is $50. It will be years and years before this debt is ever satisfied, and that’s assuming you don’t add to $2500 balance.

To the consumer or the credit card holder this is a good deal because it allows them to spend money without having to pay for goods or services in full. The reality of the situation is this is the main culprit in consumers that.

If you have bought into this principle, you are not alone. If you desire to escape the madness of credit card debt and debt in general you must implement a plan to do so.

Do not get caught in the thinking that you are making your minimum monthly payments, so you are doing good. Making minimum monthly payments only insures that you will be making minimum monthly payments for a long time, and that’s where creditors want you to stay.

Most who consider debt settlement are looking for an alternative to bankruptcy.  Usually because of excessive debt that can’t be paid back.  Debt settlement is when you negotiated the amount you owe with your creditors to pay a lower amount.  There are a number of debt settlement companies out there, but you can also do it on your own.  Some debt settlement companies can charge huge fees for their services so be careful if you decide to work with one.

You may wonder why a creditor would agree to a debt settlement; surely they want their money.  This is true, but not in every case.  Many creditors would rather accept a lower amount than spend the time sending you dozens of collection notices to get the full amount.  They would rather accept a debt settlement of 20-75% of the amount owed as a one-time payment and forget about the rest of the debt.   The creditor then reports on your credit report that the debt has been settled.  Most of the time a creditor will only accept a debt settlement if you are at least three months behind on payments.  No one can guarantee that a creditor will accept a debt settlement but it’s always worth a try.

Debt settlement companies are becoming more prevalent every day.  In the current weak economy, these debt settlement companies are looking to take advantage of the large number of Americans in debt.  The problem is when these companies know they can charge excessive amounts for debt settlement services.  These companies are supposed to help you negotiate with creditors.  Sometimes these companies cannot negotiate debt settlement with all your creditors yet still charge you fees every month.  Be careful and fully investigate any debt settlement company you work with.

Debt settlement is only a good option if you are looking at imminent bankruptcy.  It also isn’t the best option if you qualify for Chapter 7 bankruptcy.  With a chapter 7 bankruptcy most of your unsecured debts are written off so debt settlement is unnecessary.  And also if you qualify for chapter 7 you most likely don’t have the cash flow that debt settlement would require.  Under these circumstances another option, like debt management, may be better for you.

Some consumers decide to purposefully allow their account to get three to six months delinquent in order to negotiate a debt settlement.  If you are good with making your payments this would be a huge mistake.  Debt settlement in these circumstances would only ruin your credit rating and your reputation with your creditors.  However, if you have a legitimate financial hardship that is making it increasingly difficult to make payments on time, then this might be a good option and is a bankruptcy alternative.   Creditors will be more like to accept a debt settlement if you had at least been attempting to pay the debt back.    There are many other options when debt settlement may be right for you, the decision is yours to make.