Is a Debt Settlement Program a Viable Bankruptcy Alternative?

A debt settlement program could be the best bankruptcy alternative for people who are struggling with serious debt problems. There are several debt-free solutions that can help to ease the pressure of financial difficulties so exploring the benefits of each is an important part of the selection process. Invest time at an early stage, and make sure that you choose an option that prevents the accrual of further costs and problems at a later date.

What is a Debt Settlement Program

An intermediary,the debt management company, will negotiate with creditors so that they can reach a deal that'll write-off up to 50% of your unsecured credit. This bankruptcy alternative involves making a payment to creditors for a period of up to 36 months. At the conclusion, any remaining credit is eliminated so you'll be able to enjoy a debt-free life. Unlike chapter 7 bankruptcy, the matter will not appear in the paper.

Choosing A Bankruptcy Alternative

Although filing chapter 7 enables you to become free from debt in just 4 to 6 months, not everyone now qualifies under the 2005 bankruptcy code. The most common reasons for non-qualification are that your income is above the state median or you have non-exempt assets. A debt settlement plan would allow you to become debt-free without the associated stigma.

Debt Settlement Program Fees and Charges

Cowboys exist in every industry and debt solution providers are certainly no exception to the rule. Check with the Better Business Bureau (BBB) to make sure that a prospective intermediary has a good reputation. Under Federal Trade Commission (FTC) rules, payment should be taken each month in order to prevent the likelihood of creditor litigation and the debt increasing in the short term.

Credit Scores

Filing under chapter 7 will show on your credit report for a period of 10 years, which will make it difficult to get a mortgage. A debt settlement plan and chapter 13 bankruptcy both show on your credit report for 7 years. Continuing to make repayments on other credit agreements could mean that your rating will start to improve after a couple of years.

While a debt settlement program could be the best bankruptcy alternative, no one solution is right for everyone. It's important that you explore all your options to prevent costly and time consuming mistakes.

Disclaimer: This article in no way attempts to provide legal, financial or tax advice. One should consult a licensed attorney, tax advisor, or other qualified financial professional before proceeding.

Updated: 2 July 2011