Wondering which route to take - credit card debt settlement plan or to file for bankruptcy? This choice is far from clear cut for many people with debts but it becomes easier if you take into account a few issues. It may well feel right at the stage you are at to just get rid of all of the stresses and hassles and file for bankruptcy, but is this really the best option for you? Let us look at some facts.
Let us presume you have been struggling for some time to meet your credit card bills - even the minimum payments are a bit of a struggle now. Your credit card company have thus sold on your debt to a collection agency. Usually within days of this happening the collection agency will be in touch (or endeavour to do so) with you both by telephone and by letter. Its not at all pleasant either! They want their money and they want it now!
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However, if not in the first instance, at least some way down the line, they will reduce the amount they are asking for, and very often it will be a very significant reduction of what was once the original debt. If you go ahead and pay, the debt collection agency will get, lets say, around 60% of the final payment you make, leaving just 40% of that for the original creditor/s.
You must be asking why the original creditor would be willing to accept such a small amount compared to what is owed, but before I answer that, lets have a quick look at some figures just to make all this clear.
Lets imagine you owe $20,000 to your credit card debts.
The debt collection agency is asking for a full payment of only $10,000 from you to fully settle the debt.
The collection agency thus gets 60% of this = $6,000.
The original creditor receives the remaining 40% = $4,000.
The credit card company will obviously receive a much-reduced amount to what is actually owed to them and the reason they are willing to accept this is that they compare this figure firstly to what they would get if you were to declare Chapter 13 bankruptcy - they would get less. If you were to declare Chapter 7 however, they would get absolutely nothing!
So you can in time end up paying far less than you would do otherwise via debt settlement. Anything else to think about? Yes, actually. If you are to take on bankruptcy this will remain on your credit file for a total of 10 years, affecting your credit for that period of time. If you were to take on debt settlement your file would be "tainted" for 7 years only.
If you were to take the route of bankruptcy there are other fees to pay, namely:
- attorney fees
- a bankruptcy filing fee
- court fees
- a fee payable for a pre-filing debtor education course and you have to take the course too.
And if you were to default on the bankruptcy terms and conditions you would have to start again from the beginning, and would at the same time lose all that money paid towards the above costs. A high price to pay for no results!
Thus it appears that unless your debt has now become entirely unmanageable - and I mean entirely out of control - you should always strongly consider a debt settlement plan before contemplating bankruptcy.
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