Clear Debt Solution - Debt Settlement Blog

On October 17, 2005, a lot of people started to become interested in debt settlement as an alternative to bankruptcy. That's the date the new bankruptcy law went into effect, and it meant a rude awakening for many consumers seeking a fresh start in bankruptcy court.

It used to be that 7 out of 10 people filing personal bankruptcy were granted Chapter 7 status, where the unsecured debts were totally wiped away. That changed under the new rules. If your income is above the median for your state, or you can pay back at least $100 per month toward your debts, then you'll be turned down for Chapter 7. Instead, you'll be shifted into Chapter 13, where you pay back a portion of the debt over 3-5 years.

It gets worse. When the court calculates your allowable living expenses, it will use the approved IRS schedules, not your actual documented expenses. So even if you don't think you can pay $100 a month or more, the judge will probably disagree. Instead of a fresh start, many people will be faced with the grim reality of a harsh 5-year plan, on a court-mandated budget that forces them to adopt a much lower standard of living. That's where debt settlement starts to look pretty attractive.

Yes, I know debt settlement has its critics. But what the critics don't seem to understand is that this approach is for people who would otherwise go bankrupt! Let's examine the three main complaints against debt settlement and see where the critics are missing the mark.

"Debt settlement has a negative impact on your credit score."

Wow. Big deal! Pretend it's two years from now. Would you rather have an A+ credit rating or be totally free of debt? Pick one please, because you can't have both. All debt reduction programs have a negative impact on credit scores. That's why only people who truly can't keep up with their bills should go into one of these programs. But it's pointless to worry about your credit while you're being crushed with debt. That's like worrying about how the yard looks after your house has burned down.

"You might have to pay taxes on the canceled portion of the debt."

I've always been amazed at how frequently this criticism is repeated in article after article by skeptics. Yes, it's possible that you may need to pay taxes on forgiven debt balances, but the odds are against it. That's because the IRS allows insolvent taxpayers to exclude canceled debts. So unless you have a positive net worth, you probably won't need to pay taxes on your settlements. And even if you did, so what? You'd be paying taxes because you saved a bunch of money off your debts! And this is a problem?

"Collection activity will continue and you might get sued."

Yes, if you fall behind on your bills, your creditors will most certainly continue attempts to collect what's owed, and one or more of those creditors might sue you in civil court. This happens less frequently than most people think, especially when you are working with a Debt Settlement Program. But again, this criticism totally misses the mark. Collection activity is already a function of being in debt trouble. At least debt settlement allows the consumer to use the collection process to eliminate debt through negotiated compromises. Even lawsuits need not be cause for panic, since they can often be settled out of court. The only reason to allow a legal action to proceed to the point of wage garnishment, property lien, or bank levy is lack of financial resources with which to settle. And if that's the case, the debtor should be talking to a bankruptcy attorney anyway.

In contrast, let's look at some of the positives of debt settlement.

1. You can save $1,000s versus any other method of debt elimination (except for Chapter 7 bankruptcy).

2. You can get out of debt in 2-3 years. This is a lot better than 5 years in the financial boot camp of Chapter 13 bankruptcy, or 5-9 years in a credit counseling program.

3. You keep control over the process more than with any other approach.

4. You maintain personal privacy. With bankruptcy, your case file becomes a matter of public record, easily located via Internet search by future employers, landlords, or creditors.

5. You retain your dignity while working through your financial problems. Bankruptcy still feels like failure to a lot of people. Debt settlement represents an honest and ethical alternative to that extreme solution.

Once you're made the determination that debt settlement makes sense for your situation, you'll need to decide whether to go it alone or seek professional assistance.

* Know your rights as a consumer by reading the free resource articles on debt, credit, and collections at the Federal Trade Commission website, (http://www.ftc.gov).

Remember, thousands of people settle their debts every year, without need for lawyers or bankruptcy. When you're finally debt-free, you'll feel a lot better about having worked it out on your own. Good luck on your road to debt freedom!

Failure, collapse, and defeat are all words that come to mind when thinking about bankruptcy. Bankruptcy can be defined as the inability or impairment of a person or organization to pay their debts to their creditors. It is an option that benefits both the creditor as well as the debtor.

Within the last few years, bankruptcy laws have undergone reformation and now offer different options for filing. There are four different chapters of bankruptcy, but typically only two are ever thought of.

The most common form of bankruptcy is Chapter 7. This bankruptcy option is available to couples and individuals, as well as businesses and partnerships. Within Chapter 7, a debtor's assets can be exempt or nonexempt. Assets that are taxable properties are sold by a trustee of the courts to pay the insolvent amount of debt owed to the creditors. But, assets that are not exempt can be taken control of by the trustee and sold in order to pay creditors as much as the proceeds allow. One positive attribute of a Chapter 7 is that any earnings made after such a chapter is filed, are the debtors to keep.

The second most common bankruptcy form is Chapter 13. Individuals who have a regular income qualify for a Chapter 13. As defined by The Moran Law Group, a regular income is, "unsecured debt less than $336,900 and secured debt less than $1,010,650." This chapter usually lasts between three to five years and has a repayment between ten and one hundred percent, based on the debtor’s amount of debt and their income.

A debtor in a Chapter 13 is allowed to keep property, but must make regular payments to the Chapter trustee, who in turn pays the creditors. These regular payments are drawn from the debtor’s future income. While debtor’s are repaying their debts in a Chapter 13, they are given a means to prevent repossessions and foreclosures that does not exist within a Chapter 7.

The next bankruptcy option is a Chapter 11, which is usually used by businesses and partnerships. Individuals whose debt exceeds the amount of a Chapter 13 may also file. Usually the court oversees the debtor's business operations and assets, but allows the debtor to remain in control. A plan suggested by the debtor is submitted to the courts, and if accepted by a majority of creditor, will bind both parties to the terms of the plan.

The final option for bankruptcy is a Chapter 12. This is a basic reorganization modeled after a Chapter 13. The difference between the two, however, is that a Chapter 12 is for family farmers. Debtors keep their property, but repay creditors out of future income.

Careful examination of each bankruptcy chapter is necessary. Be sure to understand each option before choosing which to file. After close attention is paid to each option, debt relief is available to debtors and will allow for peace of mind.

After placing close emphasis on which chapter to file, look at all attributes that define bankruptcy. Components that pertain to bankruptcy include effects on credit, penalties, and time frame.

Debts are wiped clean when choosing the bankruptcy route for debt relief. However, delinquent payments and charge-offs still appear on the credit report; only now they appear as having a zero balance rather than fraudulent marks. Proof of this can be accessed in a credit report, a history of debt and transactions accumulated by the debtor.

As with any debt relief option, negative effects accompany people on their journey to financial freedom. Filing for bankruptcy stays with people for seven to ten years. Nevertheless, credit history can be repaired.

Following bankruptcy, people who have filed can attain credit again. Claims made before filing do not have a hold on future income, therefore people have the opportunity of being more deserving of credit. A negative credit history does not mean the end of the world, rather, it stays in the past. Sure it will take some work to reestablish and build credit, but with time, saving money, and learning new spending habits, good credit will become available again.

When declaring bankruptcy, all debts of the individual must be listed. Regardless of the asset's worth, if the asset is secured or unsecured, and/or if the asset is non-dischargeable, each debt must appear at the filing. If any debt is neglected and left out of the program, the individual who is at risk of committing perjury. This is a serious crime and is punishable by a court of law.

Collectively, bankruptcy can be a promising avenue to go down for people seeking debt relief. As with any form of help, there comes positive and negative aspects. When considering filing, explore all different bankruptcy chapters. Look at and understand the effects your credit will undergo, the time frame it'll take to become debt free, and all the other details surrounding bankruptcy. Once all proper steps are taken, financial freedom will eventually surface and allow debtors peace of mind.

When you hear the word bankruptcy, what words or thoughts come to mind? For me, I think of things like incompetent, last resort, and surrender. But by definition, bankruptcy doesn't sound so scary. Simply stated, a bankruptcy occurs when a borrower has used all other options for debt relief, and is still unable to pay back their debt to lenders.

So which bankruptcy option should we choose?

Well, before we answer that question, lets first attack what the option looks like.

Up first we have a chapter thirteen bankruptcy. Within the confines of this chapter we find that debtors are typically on a steady income, end up paying a trustee of the courts to pay their bills for them, and are ensured that foreclosure and repossession will not occur. This option allows for a payback of about ten to one hundred percent over a three to five year period.

At bat next we find a chapter seven bankruptcy. A chapter seven is most commonly used by individuals, couples, and businesses. Within the structure of this chapter we find that debtors' assets can either be exempt or not exempt, and therefore, can either be sold or not be sold off by trustees. The trustees then use that money and pay off the debtor's debt.

So now, ask yourself again, which chapter should you choose to best fit your needs for debt relief.