Debt Settlement a Better Debt Relief Option Than Bankruptcy

Credit card debt can be an extremely difficult burden to bear. People looking for debt relief are often faced with a challenging and time consuming process that can be extremely frustrating. Perhaps the most well-known debt relief choice, bankruptcy is an extremely time consuming process that requires significant commitment of time and resources from debtors. From determining which filing one is qualified for to attending the required bankruptcy courses, bankruptcy is not always the best debt relief option However, there is a debt relief option that offers a relatively easy escape from credit card debt without the added hassle of filing for bankruptcy. This option is debt settlement.

Also called debt arbitration or debt negotiation, debt settlement is when a creditor negotiates with a debtor or third party representing the debtor for a reduced balance on any remaining debt. The resulting reduced balance will be viewed by the creditor as paid in full.

The majority of filings for personal bankruptcy are either filings for Chapter 7 Bankruptcy or Chapter 13 bankruptcy, with Chapter 7 being the most common form of bankruptcy. Chapter 7 Bankruptcy involves the liquidation of debts. Individuals who file for Chapter 7 Bankruptcy forfeit a number of assets that are sold to pay off debts, however, the filer is allowed to keep some of the remaining property that has been ruled as exempt.

In Chapter 13 Bankruptcy, a written plan is submitted in which a debtor explains the details of how their creditors will be paid off. This pay off period usually lasts from three to five years. In most cases, individuals are allowed to keep their property.

There are several drawbacks to filing for bankruptcy, both for the debtor and the creditor.
For the debtor, the release of new laws regarding bankruptcy prevents many individuals from filing for Chapter 7 Bankruptcy. For those who qualify, the new laws require a higher valuation rate for property, meaning that many filers will lose more of their property than before. With Chapter 13 Bankruptcy, debtors must report all disposable income at an expense rate set by the IRS. This expense is often lower that the cost for the debtor. When subtracted from the debtors previous six month income, the minimum payments set for the filer are often higher than the debtor can make.

For creditors holding claim to credit card debt, a bankruptcy filing will result in that creditor receiving no payment at all for the outstanding debt.

Debt settlement is a widely accepted that offers benefits for both debtors and creditors. Debtors are afforded the opportunity to be debt free for a reduced balance in a shorter time frame than would be afforded by simply making the minimum required payments. On the other side, creditors, who would receive nothing if the debtor filed for bankruptcy, are still able to receive at least some payment for the outstanding credit card debt. In addition, creditors are able to maximize the amount received since they do not have to hire an outside collection company, who’s fees can often be as high as 40% of the debt owed.

According to Shane Boldin, of the Dallas based settlement company MyDebtRelief.com, “Many people who have credit card debt are able to negotiate their remaining balance due to the simple fact that in the creditor’s mind, it is better to receive something rather than nothing.”

Debt settlement is seen by many as a less arduous alternative to bankruptcy. This belief has become so widespread that many credit card companies have departments solely dedicated to working with debtors on debt settlements.

“Debt settlement reduces the risk for a person with credit card debt,” said Boldin. “There is no risk of losing property, as can happen if one were to file for bankruptcy. Additionally, a person with credit card debt can avoid the hassle of bankruptcy. On the other side, credit card companies stand to collect more money. It’s a win-win situation.”

For these reasons and more, many people are finding that debt settlement is a far more promising debt relief option than bankruptcy. In summation, the benefits of debt settlement on both sides are quite simple: there is less risk for the debtor and creditors stand to collect more.