Declaring personal bankruptcy was earlier the best known plan to become free of debt, especially when you are neck deep in financial trouble; it is not an advisable option to consider by everyone who is experiencing financial difficulties.
For starters, as per the reformed Bankruptcy Abuse Prevention and Consumer Protection Act, it is no longer possible for just anyone to declare personal bankruptcy.
If you have already filed for bankruptcy in the past eight years, you cannot file for bankruptcy under Chapter 7.
Also, if your average income for the past six months has been above the state median, you become ineligible for a bankruptcy filing.
The long term negative implications involved with a bankruptcy filing include a black mark in your credit report for the next seven to ten years (depending on whether you have filed for a Chapter 7 or Chapter 13) and the resultant drastic dip in your credit score are also things that put people off bankruptcy filings.
Debt settlement, on the other hand, offers to be a much more promising option for eliminating your debt and leading a stress free life within a short period of time.
It involves negotiating with your creditors to reach a settlement on paying off a reduced percentage than the original amount of debt that you owe them.
The process takes twelve to forty eight months to be completed and you can reduce the original debt balance by thirty to fifty percent.
The newly settled amount would need to be repaid within a scheduled period and can be paid back as la lump sum payment or in specified installments, depending on the terms of the settlement agreement.
Debt settlement also has an impact on your credit score and can make it difficult for you to procure loans on credit in the future but once the settlement process is in place and the creditors start reporting to the credit reporting agencies about the clearing of their dues, the credit score is likely to pick up.
Debt settlement is truly a holistic method of ensuring a better financial future.