Which Is Better: Bankruptcy Vs. Debt Negotiation

When the bills keep piling up and the minimum payments don't seem to make any dent at all, many consumers look for a way out of their debts. Two options consumers often consider are bankruptcy and debt settlement. While both are viable options, neither is without its drawbacks. What is right for each individual differs from case to case, so you need to carefully evaluate your options before choosing one over the other.

Settlement Positives

Debt settlement can be very helpful to consumers who are unable to pay their bills on time and who are constantly facing threats from collectors or creditors. By renegotiating your debt with your creditors and settling on terms acceptable to both parties, you can effectively restructure your debt and allow yourself a way out. Debt settlement can also result in having to pay back less money than you owe.

Bankruptcy Positives

The primary protection afforded to people who file bankruptcy is that you become shielded from your creditors. This means that your creditors cannot file a lawsuit against you to recover the money. Even creditors who are in the middle of a collections action, such as trying to garnish your wages, are stopped. The bankruptcy court decides the outcome of your finances, and your creditors have to make their cases to the court to collect.

Settlement Negatives

While a debt settlement seems ideal, it poses serious negative consequences. While it will not have as big a negative impact as a bankruptcy, a debt settlement appears on your credit report and makes it much harder to get credit or good loan terms. Also, your creditors can still come after you for the debts if you fail to meet the terms of the settlement or if they refuse to renegotiate the debt. Also, numerous companies that offer debt settlement services are unscrupulous and can lead to more problems than they solve.

Bankruptcy Negatives

While bankruptcy allows significant protections from creditors, it has a long-lasting effect on your finances. Any time you file for bankruptcy, it gets listed on your credit report for at least seven years. While this will not prevent you from getting a loan for that long, it will reduce your ability to get competitive terms. Bankruptcy can also cost you significant amount of money and leave you with few assets.