Loan and Equity Help

There are essentially two ways to relieve the financial pressure associated with having a large amount of debt. You can either consult a debt settlement company or file for bankruptcy. While both of these options can alleviate the damage that comes from accumulating a large amount of debt, there are benefits and disadvantages to each.

For example, debt settlement can achieve immediate results, but it may require having enough money to pay a lump sum to your creditor after a negotiation is reached. For this reason, experts have advised clients to not expect any payment plans in the debt settlement process.

Bankruptcy is also associated with several costs and fees, but unlike debt settlement, can put a long-lasting scar on your credit report  a mark that can take up to ten years to disappear. For this and many other reasons, bankruptcy should be viewed as a last resort only to be pursued when no other options exist.

Deciding what route you want to take to remove your debt can be a long, difficult process, but the following information can at least get you pointed in the right direction.

Before you decide

In order to determine whether bankruptcy or debt settlement is right for your situation, you will need to calculate your monthly income. This can include everything from regular paychecks to bank interest, alimony and child support payments, investments and bonuses. From this amount, you then need to subtract your monthly mandatory expenses.

A positive balance is the monthly amount that you can afford to pay towards your existing debt. A negative balance or balance of zero means you do not have any expendable income that could be used to pay off your debt.

When to choose debt settlement

If your monthly income exceeds your basic living expenses, you may be better off going with debt settlement. In order to qualify for debt settlement, you must have more than a set amount of debt. These amounts will vary according to the debt settlement service you choose, but are usually more than $7,500. Going through a debt settlement process can be very stressful, so be warned that those who take this option frequently have to face increased creditor calls, possible collection lawsuits from creditors, damaged credit and tax problems.

When to file bankruptcy

If your monthly income is equal to or less than your basic living expenses, you may want to consider filing for bankruptcy. There are several different chapters of bankruptcy that could potentially apply to your financial situation, and it may take quite a bit of research to determine which would benefit you the most.

No matter what chapter bankruptcy you file, there will be large fees involved. Depending on the type of bankruptcy you file, court fees could cost up to $300 – on top of any fees your bankruptcy lawyer charges.

In 2005, U.S. bankruptcy laws were changed due to the Bankruptcy Abuse Prevention and Consumer Projection Act. Now, in addition to any lawyer or court fees associated with filing bankruptcy, bankruptcy filers are also faced with several other costs. People eligible for bankruptcy must now pay for credit counseling from a government-approved organization within 180 days before they file, and complete a debtor education course at their expense before any debt can be discharged.

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