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Debt Consolidation Versus Debt Settlement

Debt Settlement Versus Chapter 7 Bankruptcy

Debt Settlement Outlet considers both sides of chapter 7 bankruptcies and debt settlement for achieving a debt free environment. In 2006, credit card companies reported a whopping $90.1 billion in interest charged to consumers. Another $55.2 billion was earned from fees charged to consumers. The compounding credit card variable interest rates, combined with current economic trouble, can send revolving credit card debt spiraling out of control. This forces many people to have to make a tough choice: debt settlement or Chapter 7 Bankruptcy.

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Credit card settlement reduces the amount of money you owe on your unsecured debt by means of debt negotiation with the creditors. To qualify for debt settlement, you will usually need to owe at least $7,500 in unsecured debt. Debt settlement does not cover secured debt. So this may not be a good option for you if you have a lot of secured debt (e.g., car loans, student loans, etc.).

Bankruptcy, also known as BK, is a legal proceeding in which a person who cannot pay his or her debts can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court.

Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law. You will have to meet specific income requirements in order to qualify for Chapter 7 bankruptcy status, which actually clears most of your debts. Under the new bankruptcy law, all debtors must take a "means test." If your income is above the average for your state, or if you can afford to pay more than $100 per month to your creditors after all of your reasonable expenses are taken into consideration, then you will have to file a Chapter 13 status which will restructure your debt but not remove it. Currently, a Chapter 7 bankruptcy costs $299 in filing fees while a Chapter 13 costs $274. Attorney fees are extra. How much depends on your case.

Mandatory credit counseling must be completed at least 6 months before filing bankruptcy and no bankruptcy will be discharged until you finish a financial management course. Under the new bankruptcy laws, if you charge more than $500 on one credit card that the court decides are luxuries within the first 90 days of filing bankruptcy, you'll have to pay the entire bill.

In a Chapter 7 liquidation case, the debtor has to turn certain property, which exceeds certain limits called "exemptions", over to the bankruptcy trustee, so that the property can be sold and the proceeds used to pay off as debts as possible. "Exempt" property is property which the law allows you to keep when you file bankruptcy. In most cases, all of your property will be exempt. Even though your property won't be enough to pay the debt you owe, qualified debts will be discharged. Also, Chapter 7 only discharges unsecured debt. If you have more secured debt than unsecured debt, then you will need to file for Chapter 13 to have the debts restructured.

Bankruptcy offers fresh start but rebuilding credit can be harder for homebuying or refinancing because bankruptcy (Chapter 7 and Chapter 13) stays on your credit for 10 years, and it's a public record. Debt reduction through debt settlement shows up on your credit report as "Settled" or "Paid in Full for Less than Full Balance". But, debt settlement enables consumers to settle debt and repair credit faster because it only stays on your credit for seven years. But, depending on the debt settlement company with which you work, that may be deleted. Many are effective at getting the creditors to the negative marks off credit reports and show that the account is paid in full. And, some include a credit repair service that will remove the negative items caused by the debt negotiation program.