Many consumers that are dealing with debt issues ask this question often and many times before ultimately making a decision on what to do. Some of the problems that lead to the back and worth and questioning what to do is caused by the all the information a consumer will read on the internet. Like any good sales pitch articles are written to persuade the consumer to what that particular person is selling. However, there are real considerations in dealing with this question with respect to law and how that law can help someone. I am going to review the three important reasons that a consumer should file a Chapter 7 case and not do a debt settlement.
1. The amount of debt owed: There is nothing wrong with a debt settlement for a consumer to consider as long as it is conducted by the debtor or an attorney. (See our blog about debt settlement companies) However, the amount of debt owed is the deciding factor on why a consumer should file a Chapter 7 case. The issue is that if you need to resolve more than one debt the cost to do so could be too expensive to do so. For example, if you owe nearly $20,000.00 in debt you will need at least $12,000.00 to settle your debt, if you are lucky and it could take years to get settlements resolved. As in comparison to a Chapter 7 case to handle $20,000.00, the fees are generally flat fees and range from $1000.00 to $1500.00 and takes about three months. So, the amount of your debt needs to be considered in deciding whether to file a Chapter 7 or a debt settlement for cost as well as time.
2. Credit Score Desires: If you are behind on debt, your credit score is already in the gutter no matter what you choose to do. However, if you want to recover quickly from your poor credit score, you should file a Chapter 7 bankruptcy case. I know there is a lot of confusion about this fact noted on the internet and in commercials on TV from debt settlement companies. The truth is that a Chapter 7 case allows all the negative reporting to occur to your credit report unlike settling a debt does. Even if you settle a debt, the past due payments are still noted on your credit report as well as the settlement for less than is owed is being reported to your credit report. These negative reports will continue to drive your credit score down. Now, if you have only one bad debt and ten positive debts, you credit score may survive a major disaster. If you have several negative debt situations, only the Chapter 7 discharge can clean up your credit quickly. Yes, you will have a Bankruptcy case noted on your credit but you will also not have any negative reporting of the past debt you discharged on your credit report only increasing your credit score. And, you can continue to build on your credit report to increase your score each day. Unlike the debt settlement choice, you will have to battle every day to get your credit score back to a positive. This is the real truth of this situation. Debt Settlement agencies have trying to pull the wool over the consumers eyes about this truth. Do not be fooled.
3. Guarantee Outcome: If you want guarantee outcome and timeline, you have to consider the time and law for both debt settlements and a Chapter 7 bankruptcy case. Debt settlement is supposed to be conducted within the Fair Debt Collection Act (See our outline of the act). However, no one is watching over the debt settlement agencies to ensure that they are following the rules of the act. Instead, it is only after a consumer was harmed and only if that consumer raises the issue is the debt settlement agency forced to do the right thing. Additionally, there is no law requiring the debt settlement agency to guarantee settlement of debt or a timeline of when it can be done. On the other hand, a Chapter 7 bankruptcy is a constitutional right that is regulated by the Department of Justice to ensure that the process is completed within the law and done right. Also, if the Chapter 7 case is prepared correctly, the process only takes about 3 to 4 four months to complete. Therefore, if you want a guarantee outcome and solid timeline, you should file a Chapter 7 case.
You have to ask yourself what you really want to do when you are facing the choice of filing either a Chapter 7 case or do a debt settlement. These three reasons provided above should be considered when making that choice. I will caution anyone to not believe what you read from tax settlement agencies or debt settlement agencies about how bad bankruptcy is or what it will do to your credit. The reality is that if you have debt issues your credit is already bad. The only issue you need to discuss is what is the best course of action on cleaning up my debt and my credit? The bankruptcy program in the United States was designed to protect and to provide a real solution to consumers without getting taken by false or misleading programs. It is the only government monitored program that exists in this country.
Also, I always recommend that you seek counsel to discuss on how to deal with any debt issues.