It’s a shame, but credit card debt is steadily becoming the financial norm with more and more American consumers. The majority of every paycheck seems to be going to a credit card company or a collection agency. Many are on the brink of bankruptcy thinking that there’s nowhere else to turn.
Where Bankruptcy Falls Short
Bankruptcy doesn’t always mean that all of your debts are going to be forgiven. You may need to pay some or all of those debts back over time. This depends on what type of bankruptcy you end up filing. In 2005, the government made it much harder to claim Chapter 7 bankruptcy, where consumers could clear their debts without having to pay them back.
The government was trying to force consumers who wanted to file bankruptcy to file for a Chapter 13. With Chapter 13 you’re essentially restructuring your debts with better terms, like little or no interest over the course of the next five years. But you are going to repay some or all of the debts in your name.
Even if you’re one of the lucky people who’s eligible for a Chapter 7 bankruptcy, things like student loans, IRS liens or any sort of secured debt probably won’t be discharged in the bankruptcy. If you’re not making payments on your car, they’ll just take the car back … no bankruptcy proceedings needed.
Either way, if you’re able to eliminate your debt, you’ve almost definitely ruined your credit score and your ability to borrow for many years to come. A bankruptcy will remain on your credit reports for up to ten years. Additionally, every creditor that did not receive payment is within their legal rights to continue to list your account for up to seven years.
So while you may be out of debt, you’ll have zero ability to get a loan or even a credit card for some time. Bankruptcy should really be a final option.
How Settling Debts Can Help
Usually people find themselves overwhelmed with debt because of an unforeseen circumstance; they lost their job, had a baby, needed car repairs, or something along those lines. Whatever the situation, people become so frightened that once they stop making payments, they simply bury their heads in the sand (about 65% of our credit repair clients).
Settling your debts is something that you can do on your own, but the reason that you ended up in this predicament is probably because you were unwilling to deal with your creditors in the first place. Either start talking to your creditors or find an ethical debt relief company to handle it for you.
Debt relief can help you reduce and eliminate your debt by negotiating settlements with creditors and collection agencies. While your creditors are under no obligation to settle your debt, they realize that the longer it goes unpaid, the less like they are to recoup any of that money. Often they’ll be willing to settle for less than half of what you owe.
Debt Relief’s Effect on Your Credit
As I said earlier, bankruptcy is going to absolutely ruin your credit for up to ten years. Debt relief’s solutions can help you turn around your credit profile much quicker than that. While you won’t see your scores shoot up immediately, you are avoiding a bankruptcy from being listed in the public records section of your credit report.
While settling your debts with creditors or collection agencies, you might be able to work out an agreement where they stop reporting your account altogether. This is obviously much better than it being reported as a negative account. Even if it’s discharged in a bankruptcy, those accounts are still likely to be listed as negative on your credit reports.
With debt relief, once you’re done paying off your debts, you can start rebuilding your credit immediately. Something that’s a lot harder after bankruptcy. Obviously you want to make sure that the company you use is reputable and ethical. Try to find someone who charges about 5% of your total debt this way the majority of your money can go to actually paying off those debts you have. And check their BBB ratings. Just like anything else in this world, the “A” rated companies are the ones you want to stick with.
