Are you so far into debt that you feel like your only option is to file for bankruptcy protection? While bankruptcy may be right for you, before you make a decision that will impact your life for the next ten years, it is important that you consider all of your options.
One thing that you may want to consider is consumer debt settlement.
This can be a good alternative to bankruptcy for many people.
Debt settlement, or debt negotiation, is where you negotiate with your creditor to reach a sum that is less than what you owe that they agree to accept as payment in full.
As long as your settlement agreement is properly documented, settling debt relieves you from any further obligation to the creditor.
You may be wondering why a creditor would consider settling debt.
Generally speaking, only unsecured debts can be settled.
This can be credit cards, personal loans or medical bills.
Lenders are willing to settle this debt if they believe that there is a chance that you might file for bankruptcy.
In a bankruptcy, it is very rare that an unsecured creditor will receive anything at all.
Thus, they are willing to accept less than you owe them now to avoid the chance that they are left out in the cold completely in the future.
You should understand that unless you are able to negotiate your credit rating (which is rare on a good settlement where you are paying only a fraction of what you owe) settling debt will hurt your credit score.
For this reason, it is something to turn to if you are in a situation that an account has already been charged off and the damage to your credit has been done.
You may also face tax consequences, so make sure you understand the ramifications of settlement before you decide if it is the right alternative for you.
Depending on your situation, you can expect to settle and account for anywhere between 30% and 65% of your total balance.
You may have heard of debt settlement companies and assume that you should hire one if you decide that debt settlement is right for you.
This is actually not a good idea.
The settlement industry is very unregulated and more companies than not will take your money and fail to deliver results.
Since upfront fees are often up to 20% of your balances - which the agreements stipulate that they keep regardless of whether they negotiate a successful settlement - this is a very risky move