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Bankruptcy or debt settlement

Submitted by Anonymous on Fri, 06/24/2011 - 07:59
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So far I have not missed any payments on any of my loans or credit cards. But I lost my job and am now working part time at a job that pays a lot less. So I can see I'm going to have problems and will likely not be able to make payments. So if that happens am I better off filing bankruptcy ASAP or should I try to negotiate and do some form of debt settlement with one or two of my biggest bills? In other words what will have the least impact on my credit score and my ability to get loans and credit cards. I got one credit card with about $19,000 on it. Thanks.

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Debt settlement service or bankruptcy?

Submitted by The Editor on Fri, 06/24/2011 - 09:20.

I think it's great that you are planning ahead and trying to deal with this issue but, really, without knowing a lot more about your situation, I can only guess whether Bankruptcy or a debt settlement will be best for you.  You should discuss the matter with a bankruptcy attorney, someone who can look at the details of your situation.  Depending on who your creditors are and what types of debt you have, an experienced attorney may actually be able to help you find a solution that does not involve bankruptcy.

Generally, unless you are somehow able to negotiate away a debt in a way that has no impact on your credit report (difficult to do), I think bankruptcy usually works out better for those who are trying to preserve their credit.  Yes, your credit score will take a hit, but then you can begin to rebuild your credit immediately.

A typical debt settlement is more of a drawn out process that often does not end as the debtor envisioned.  Creditors will not usually entertain debt negotiations until you've missed several payments, and by that point your credit score is already sliding in the wrong direction. Every late payment may result in another negative report to the credit agencies.  Also, some creditors do not negotiate.  They are certainly not obligated to negotiate and may be more comfortable sending your debt off to a collection agency.  As you know, if that happens your credit score is in for another beating.  Some creditors may resort to litigation WHILE they are "negotiating" with a debtor.  More bad news for your credit report.

Finally, if you don't have to look very hard on the Internet to find articles about consumer complaints regarding for-profit debt counseling agencies. If you decide to go this route, make sure you check the agency out thoroughly.  Do yourself a favor and at least talk to an attorney before making your decision.  Good luck.

 

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