If you are like millions of Americans struggling under the weight of credit card debt, you may feel that your life has spiraled out of control. You can take control back by exploring your options for credit card relief. One smart option to consider is debt settlement.
Bankruptcy is a legal process that allows debtors to repay a portion of their debts, or to have all debts forgiven. Through bankruptcy, debtors can gain relief from most of their debts, although there are some exceptions. Bankruptcy typically does not offer a reprieve from:
Bankruptcy aims to give debtors in a hopeless financial situation a way to start over. It is not designed to be an easy or attractive way of avoiding debt repayment. It comes with significant costs and restrictions. The most obvious cost of bankruptcy is major credit score damage. People who opt for bankruptcy should know that it is unlikely that they will be able to obtain future loans at a favorable rate for many years after filing bankruptcy.
State law determines the exemptions associated with bankruptcy, meaning the assets the bankruptcy filer may keep after liquidation. Exemptions typically cover one’s house, clothes, and first vehicle. Most states do not exempt second vehicles, collectibles, antiques, etc. The filer may have to forfeit such assets to the trustee.
Over the last decade, millions of Americans chose the path of personal bankruptcy to address their debts. In 2019 alone, 752,160 people filed personal bankruptcy cases. In 2015, the number of bankruptcy cases was 794,975, leading to forgiven debt amounting to $47 billion. This translated to average household savings of $59,000.
(Created with Amcharts.com, using data from the American Bankruptcy Institute.)
However, it should be noted that bankruptcy should be considered only as a last resort in cases of extreme financial hardship, largely because of the significant impact such a course has on your credit score. Bankruptcy can remain on your credit report for 7 to 10 years depending on the type of bankruptcy for which you qualify.
Ninety-nine percent of bankruptcy filings are Chapter 7 or Chapter 13 filings. Of these, around 60 percent seek Chapter 7 coverage, and 40 percent opt for Chapter 13, so these are the two bankruptcy options discussed here.
When a debtor files for Chapter 7 bankruptcy, an ‘automatic stay’ comes into effect. This ‘stay’ lasts until the end of the bankruptcy process and it prevents creditors from making any collection efforts. It also denies creditors the possibility to sue the debtor.
The bankruptcy filing notice pops up on the credit report of the debtor just as quickly as the ‘stay’ goes into effect. This ‘black mark’ remains on the credit report for 10 years in the case of a Chapter 7 bankruptcy, and seven years in case of a Chapter 13 filing.
Record of the debts that the bankruptcy proceedings discharge remain on the debtor’s credit report for seven years as well.
Typically with a Chapter 7 filing, it should not take longer than three to four months for your debts to be discharged.
To qualify for Chapter 7 under the provisions of the 2005 BAPCPA, the monthly income of your household needs to be under the state median for households of similar size.
After a Chapter 7 debt discharge, you may not file another Chapter 7 bankruptcy for six years.
Chapter 13 is more about debt consolidation than debt discharging. As soon as a court launches a Chapter 13 proceeding, home foreclosure proceedings against the filer are required to stop. The debtor then submits a financial reorganization and debt repayment plan. He or she proceeds to make monthly payments under the plan the court approves, in a consolidated manner.
It is the job of the impartial trustee to distribute the payments to the debtor’s creditors.
The length of the repayment plan is three-to-five years. The repayment plan is not lenient. It aims to pay creditors at least as much as they would receive under other types of bankruptcy. It also does not shy away from seizing 100 percent of the filer’s disposable income for repayments.
The person who typically resorts to this debt resolution method is in a dire financial situation. This means that he or she:
Has massive debts and no hope to repay them.
Other alternatives may be debt settlement, debt consolidation, credit counseling, and debt reduction by your own means. Credit counseling and debt consolidation loans are generally chosen by people with a smaller debt load and good to excellent credit. These methods of debt relief may not work for those with a larger amount of debt who are considering bankruptcy.
Debt settlement, on the other hand, can be an excellent choice for those hoping to avoid bankruptcy.
Unlike bankruptcy, debt settlement does not require a court filing. You are not required to retain an attorney or additional financial counseling. You do not pay any upfront fees. While you make payments, you do not have to repay your debts in full.
Your creditors settle for less because they know you have left open the option of bankruptcy, which could leave them with little chance to collect your debts.
|Credit Score||No set requirement||No set requirement|
|Qualifications||At least $10,000 in unsecured debt and regular income||Must document income and expenses for court. Typically must have no disposable income. Debt usually >50% of your annual income. Income below the median level for your state.|
|Upfront Fees||$0||$500 to $3,500 - court filing and attorney fees can vary|
|Financial Benefits||Provides short-term relief with a low monthly payment, and long-term relief with avg. term of 24-60 months||Forgives most unsecured debts, like medical bills, credit card debt, and personal loans.|
|Credit Impact||Significant, but not as bad as bankruptcy, which has the biggest impact to credit according to the FTC||Severe impact lasting 10 years|
|May reduce original debt load by half (exclusive of fees)||Typically need to be current with tax filing. Must undergo credit counseling 180 days before filing. Irrevocable.|
Although bankruptcy is sometimes the only answer for someone in a desperate financial situation, it should not be entered into lightly. Before deciding to go this route, you should make sure you have exhausted all your other debt relief options. Debt Settlement may be a viable alternative and a ClearOne Certified Debt Specialist can walk you through your options and help you decide what may be the best choice for you. Below, we've outlined some of the pluses and minuses of bankruptcy:
A Chapter 7 bankruptcy relieves you of all qualifying unsecured debt. There are certain exemptions like child support obligations, criminal fines, student loans, etc.
A Chapter 13 bankruptcy requires you to repay at least as much of your debt as you would through a Chapter 7 bankruptcy.
On the other hand, with debt settlement, all of your creditors do get repaid a portion of what you owe. Before taking a drastic step like bankruptcy, you owe it to yourself to consider ClearOne Advantage debt settlement as a viable option.
Bankruptcy leaves a huge ‘black mark’ on your credit report for 7-10 years.
A debt settlement plan with ClearOne Advantage will also have a negative impact on your credit score, but that impact will not be as severe as the impact of bankruptcy, which, as the FTC attests, should be considered as a last resort.
Debt settlement programs can be lengthier than bankruptcy, but if the option is available to you given your financial situation, you should likely take it over bankruptcy.
ClearOne Advantage and our Certified Debt Specialists are here to help take care of the debt relief process for you. Give us a call at 888-340-4697. While our goal is to get you out of debt in a reasonable amount of time with a payment you can afford, we are also committed to providing you with the support, tools, and resources to help you gain control of your finances.
Disclaimer: ClearOne Advantage is not a law firm and does not provide legal advice. If you are considering bankruptcy you should consult a licensed attorney
I wish to thank you for all of your agency support and encouragement. The last two months have been very stressful due to the accounts going legal. It has been also very rewarding to get through this process and have a good grip on our future and we have started this planning and example for our children.