Comparison Between Debt Settlement and Bankruptcy
Debt settlement and bankruptcy both are debt relief options. These options are chosen when an individual had stuck deep in debt and looking to get out of it. When a person is knee deep in debt meaning he/she has no sources of income to clear the debt in a fair way. Hence, one has to look for debt relief options to become debt free.
Debt settlement and bankruptcy, each has its own advantageous and disadvantageous. Before taking decision to choose one particular, it is very important to know about each option and how one differs from other.
The main difference between debt settlement and bankruptcy is that, debt settlement is an agreement between you and lender that is taken care of out the court steps whereas the bankruptcy is legal procedure that is taken care of attorney inside the court steps to discharge liability.
If bankruptcy is filled perfectly and one who files qualifies for it, the court can order or enforce the creditors to discharge the debt. In general there are two types of bankruptcies for consumer to file. They are chapter 7 and chapter 13.
Chapter 7 bankruptcy is to be filled when you want to eliminate debt and chapter 13 to restructure debt into a repayment plan based on how much the debtor can repay, not necessarily the whole amount the debtor owes. According to earlier laws of bankruptcies laws, a person who files bankruptcies will manage to discharge whole debt that he incurred till then but recent laws that amended do not allow to discharge some debts like student debt secured by federal government, taxes etc.
In addition, the bankruptcy filled will be reported to credit rating agencies and that will stay on your credit report for at least 10 years. Bankruptcy on your credit report will have negative impact on your credit score and as a result your future credit will be impacted.
On the other hand, debt settlement is a process that is carried out of court agreement made between debtor and creditor. The agreement is made for the benefit of both the debtor and creditor. With debt settlement, the debtor will not manage to discharge the debt as in case of bankruptcy instead a repayment plan that is in favour of all the creditors of debtor will be made. For debt consolidation to work, it requires that each and every creditor must agree to debt settlement and its repayment plan terms.
Debt settlement in the same way as bankruptcy will be reported to credit rating agencies. Debt settlement will remain on your credit report for 7 years. It is natural that credit score will be impacted in either of the option and if you are in such a position to opt either of the option, then you are already half way down of your credit score and at the same time with any option total debt will not be discharged.
Since the impact of debt relief options is much less than bankruptcy and they are easier for you to handle the procedure. Choosing the debt relief option enables the lender to get some amount from you instead of walking away will all the debt.