Legal

Bankruptcy Versus Debt Settlement


Credit card (Photo credit: Wikipedia)

There are various methods to eliminate credit card debt. Some of the most common solutions are settlement and bankruptcy. Each solution has some pros and cons. In the end, the best option in eliminating your credit card debt could be your financial stability in other parts of your life. In case your credit card debt is only one part of a bigger financial problem, bankruptcy might be the more sensible choice over a credit card debt settlement. However, bankruptcy and debt settlement will both have negative impact on your credit scores until you can re-establish a good credit history.

What Happens To Credit Card Debt In Bankruptcy

You will be released from your legal obligation to pay off your credit card debt t and your creditors are prohibited from coming after you to collect for payment. A Chapter 7 bankruptcy involves a liquidation of a debtor’s non-exempt assets so your debts will be forgiven after you have paid down as much of your debts as you can.

Chapter 13 bankruptcy enables you to reorganize your secured debt such as a mortgage loan and unsecured debt such as credit cards to pay them off within three or five years. The advantage with Chapter 13 bankruptcy is your assets are not going to be sold by a bankruptcy court in order to repay your creditors. When you pay according to the repayment schedule approved by a bankruptcy judge, your creditors are prohibited from taking legal actions against you to seize your assets. After completing the repayment plan, any outstanding debt is discharged by the court

You can choose to reaffirm certain debts during the bankruptcy process. If you enter into a debt reaffirmation agreement with a creditor, the debt involved will be excluded in the bankruptcy process and you will make the regular payment. Debt reaffirmation provides you a chance to negotiate better terms of repayment with a credit card company. You can request for a lower rate of interest. This can make repayments more affordable and enable you to complete the bankruptcy process with an intact credit. Depending on the type of bankruptcy you file, your credit cards would otherwise be frozen or canceled. You will also get to keep the account open when you reaffirm your credit card debt. This can improve your credit score as you repay the balance.

Credit Card Settlement

Credit card settlement is an arrangement between you and your credit card company to make a lump sum payment that is less than the actual amount you owe. It will enable you to pay as low as 50 percent of your credit card account balance and the debt will be reported as paid off to the credit bureaus. But the problem with credit card settlement is if the discount given by credit card company is more than $600, you have to state is as your income on your taxes. After the debt is settled, the credit card account is closed.

Every persons financial situation is unique. If you are considering filing for bankruptcy or settling with your credit card company, it would be a good idea to talk to a San Antonio Attorney to get advice. A San Antonio Lawyer who has great experience in bankruptcy and debt cases can help you make the most out of a bankruptcy filing or credit card debt settlement.

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