Debt Settlement versus Bankruptcy: Comparing the Benefits

Debt settlement and bankruptcy are two options that you are presented with when you get behind on your financial obligations. Both options are valid and can be beneficial to you in certain circumstances. Many people rush into bankruptcy when they would be better served by debt settlement. Others hang on too long and try to avoid bankruptcy when they should just go ahead and do it. Here are a few benefits to think about with each method. 

Debt Settlement

  • Less hassle- With bankruptcy, the process to get everything completed can be very lengthy. You will also need the services of a lawyer to get through the entire thing. There will be court costs and a lot of time spent in the judicial system. With debt settlement, you can avoid many of these problems. It can be handled on an individual basis with each creditor without the aid of a lawyer.
  • Alternative to bankruptcy- While many people try to obtain bankruptcy status, not everyone qualifies for it. Under the new bankruptcy laws, many people simply cannot file for it. Just having a lot of debt is usually not a good enough reason to be approved for bankruptcy. You have to show some circumstance that was beyond your control that helped you get into this mess. If you do not qualify for bankruptcy, debt settlement is a viable option. You can still settle the debts for less than you owe without the assistance of the court.  

Bankruptcy

  • Eliminate debt- With bankruptcy; you can stop creditors in their tracks. This is designed as a second chance, to help borrowers that are in over their heads. You may never be able to repay your debts at your current pace. Due to circumstances beyond your control, you have accumulated debts that you cannot pay. With bankruptcy, you can eliminate them and start over.
  • Lift the burden- Debt brings with it a huge psychological burden. When you are in debt over your head, it is all you think about all day long. You are constantly worrying about the debt and how you will make your minimum monthly payments. You are receiving calls from debt collectors several times per day. With bankruptcy, you can eliminate the calls and the worries. You will be much happier and feel like a burden has been lifted from your shoulders. 
  •  Fresh start- When you are in deep debt, you have no idea what you are going to do. It can cause health problems and mental problems from the psychological strain. Getting a completely fresh start will go a long way towards helping you and your family. You have learned from your mistakes and you know what you should not do in the future. 

The Verdict

Depending on your current situation, both debt settlement and bankruptcy could be beneficial to you. Usually, you should reserve bankruptcy for when you are in way too deep to ever get out. This is when something beyond your control caused you to accumulate unbelievably high debts. In other cases, you should probably just stick with debt settlement and hang onto at least a somewhat decent credit rating.


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