Debt Settlement vs. Bankruptcy

Debt settlement vs. bankruptcy is almost a "no contest" when it comes to your credit history. These two methods of debt relief are different in many ways, and if you are seeking help that won't damage your credit report, you should choose debt settlement. Bankruptcy can get you out of debt, but your credit profile will be tarnished. Consider this comparison of debt settlement vs. bankruptcy before you make any major financial moves.

Debt settlement vs. bankruptcy and your budget

When you file bankruptcy, there are two options: a Chapter 7 (which will completely wipe out your debt) and a Chapter 13 (which will allow you time to pay your debt down and wipe out what remains). It is decided in a court of law how much you can afford to pay on a monthly basis. In essence, when you file for bankruptcy, you are surrendering control of your financial situation because you feel that you are unable to handle it yourself.

Debt settlement allows you to take control of your budget. You will work with a debt management program and you will determine how much money you will set aside to pay your creditors. Like a Chapter 13 bankruptcy, after a specified time period, remaining debts will be pardoned.

Debt settlement vs. bankruptcy and your credit

There is no doubt that, when lenders review credit histories, bankruptcy is frowned upon. Your credit report will show your bankruptcy for 7-10 years. Even if you manage to rebuild your history with timely repayment of debt after filing bankruptcy, you may not get approved for a personal loan, auto loan, credit card, or mortgage as a result.

If you choose debt settlement, your credit report will show that you are in a DMP (debt management program) which will show that you are taking responsibility for your debt, and learning to manage it. It is much more favorable to have debt settlement on your credit report than bankruptcy.

Debt settlement vs. bankruptcy: which one is for you?

Don't file bankruptcy unless you have no other options. If you are unemployed, have little or no savings, and/or have suffered a loss that has completely hindered your financial situation, bankruptcy might be your only choice. On the other hand, consider debt settlement if you do have an income and you are committed to getting out of debt over time.

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