All-you-need-to-know-about-debt-settlement

Debt settlement: Everything you need to know about it

Most of the people in our country are struggling to pay off their debts. The huge debt burden forces them to file bankruptcy to get rid of their debts. However, there is another option that can help debt-ridden people to get out of their debts.
If you realize that you are unable to repay all your debts, then you can settle your debts. Debt settlement comes across as an advisable option to get you out of debts instead of filing bankruptcy.
Though you can approach the debt settlement companies to settle your debt, you can settle debts on our own.
In this article, you will understand everything about debt settlement.

What is debt settlement? How does it work?

Debt settlement is a process where the debtor negotiates with the creditors to reduce the total debt amount. The debt settlement process can be done by the debtors or with the assistance of a debt settlement company.
In a debt settlement process, you should negotiate with your creditors to reduce the debts.
Debt settlement works well only when a debtor has been delinquent on payments. Unless a valid reason is stated to reduce the amount of debt, the creditor is not going to accept any amount less than what is originally owed.

Can you consider debt settlement to settle both secured and unsecured debts?

You can only settle unsecured debts like credit card debts, medical bills, store credit card, deficiency balances, and utility bills. You can’t settle secured debts like home loan, and car loan. However, you can settle private student loans because these loans are nothing but personal loans.

Can you settle the debt on your own?

Though you can settle the debt on your own, the task of negotiation with the creditors can be difficult. Thus, you can consider debt settlement service to settle debt.
To settle your debt, you need to enroll in a debt settlement program. Debt settlement program is also known as debt negotiation program. So, once you enroll in a debt negotiation program, the debt settlement process starts. The debt negotiator in the debt settlement company performs the task of debt settlement negotiation with your creditors to reduce what you owe.

What happens in a settlement program

If debt settlement seems to be the right option for you, then you need to enroll with a debt settlement company to settle your debts. Choose a debt settlement company who will help with debt settlement. The challenge is to reduce the outstanding balance you owe to the creditors. Thus, you should enroll in a best debt settlement program so that you can find the best negotiator who will negotiate on your behalf with the creditors. In a good debt settlement company, the debt negotiators are well trained to negotiate with the creditors. They have a better idea on the situation. Because of their expertise, you can expect to get better debt settlement service. Your creditors can agree to settle your debt and you can get out of the debt by paying a reduced amount.

Debt settlement pros and cons

Though debt settlement is one of the best ways to get rid of the debt, it has some pitfalls. Before you enroll in a debt settlement program, you should know the pros and cons of considering the debt settlement option.

Pros of debt settlement

  • You need to pay less than you originally owe to the creditors

    If there is a successful negotiation between the debt settlement company and the creditor, then you are required to pay much less than what is initially owed on the account. Debt settlement process excels in lowering the total amount you originally owe as compared to a debt consolidation program or debt management plan.

  • You can save money

    If you enroll in the best debt settlement program, then you can save money through the debt settlement assistance. The debt negotiator will help you to save money by reducing the total debt amount through a debt negotiation program. Most of the times, the debtor can save less than 50% of the original debt, which can end up saving a lot of money.

  • You can settle your debt fast

    A good debt settlement company can help you get the best debt settlement assistance. Thus, you can settle your debt in a much lesser time than some other debt relief options.
    Debt negotiation eases the burden of debt by creating a concrete plan of action which is achievable for the common person.

  • You can repay debt more hassle-free

    Debt settlement plan allows you to save money in a trust account. The settlement company will disburse the amount among the creditors when you have saved the required amount in the account. So, by enrolling in a debt settlement process, you can get rid of your debts hassle-free.

Cons of debt settlement

  • You need to pay tax

    You may face tax obligations if you decide to settle your debt. Since, you are not paying the full debt, so you are saving money. Thus, you are entitled to pay tax on the total amount that you have saved through the debt settlement process.

  • You need to pay a fee

    Besides the fees paid to the settlement company for paying the creditors, you need to pay a fee to the settlement company for opting the debt settlement service. However, there is no upfront fee.

  • Debt settlement can hurt your credit score

    Debt settlement process may have a negative impact on your credit score. If you are unable to repay the debts in full, then it can have negative implications on your credit score. After you settle your debts, your credit report will be updated as “Pay as settled”. Thus it will pull down your credit score. However, you can negotiate with the creditor to remove it.

Tips to follow when you settle your debt

  • Be clear in your debt settlement negotiation

    If you are facing financial hardship and, due to that you are unable to repay your debts, then the creditors might be interested to negotiate with you. Instead of giving all the details about why you cannot pay the dues, come up with a few sentences that you can consistently use to talk to the creditors. Above all, be honest. Don’t tell everyone a different story, which may backfire.

  • Talk politely with the creditors

    Keep calm while talking to the creditors regarding debt settlement. You will worsen the situation if you lose your temper. Simply describe your financial hardship to convince them for the debt settlement. Be in your best behavior while communicating with the collector. Your attitude can make a difference.

  • Know what you can afford to pay

    Before considering debt settlement, figure out the amount that you can afford and pay. However, if you enroll in a debt settlement process, they will assess your income and tell you how much you can pay in debt settlement.

    Lastly, debt settlement has its advantages as well as disadvantages. But if you are drowning in debt, then debt settlement can be the best choice since you can repay debts by paying a lower amount. Yes, debt settlement process can hurt your credit score, but you can rebuild your credit score with time. You need to add positive information to your credit report. For example, making monthly payments on time, staying within the credit limit and paying the credit card bill in full and within time. So, instead of not repaying the debt at all, you should pay the debt that you can afford. If you totally ignore your debts, then the creditors will sell your debt to the debt collection agency to collect it. If the collectors win the judgment against you, then you can be sued for the unpaid debts. So, you should settle your debts before they are sold to the debt collectors.

How will bankruptcy treat your debts and make you debt free?

How will bankruptcy treat your debts and make you debt free?

Bankruptcy deals with debts in a way, no other debt relief option does. By debt relief, we mean a process that helps to pay off debts.
That could be anything out of, Debt Consolidation, Debt Settlement, Credit Card Balance Transfer, or for instance, Bankruptcy.

In this blog post, we will be revisiting Bankruptcy. We felt people want to know Bankruptcy in an easier approach!
And, we aim to satisfy you with quality content and clear water information.
Bankruptcy gives you shelter from the cold threats and hot actions of creditors and collectors.
It forgives most of your debts, at times all! And, it gives you a new meaning to your life, if taken positively.
Many famous people have filed bankruptcy in the history of our nation.
Examples are big music bands, important political figures, Hollywood stars, and many more! Will Smith did it,

Abraham Lincoln did it,
Marvin Gaye went through it…… even did Mike Tyson.

In most of the cases, bankruptcy seems to work out in unexpected ways. It is noticed that people start to change after filing bankruptcy! Their financial habits change, their lifestyles change, and most astonishingly their social health changes.

Here, we will cover 3 important aspects of Bankruptcy:

  1. How Bankruptcy treats your debts. A breakdown of Chapter 7 and 13.
  2. Impact of Bankruptcy on your life, and a new beginning.
  3. How Bankruptcy affects your social health.

P.S: We will only deal with consumer finance, and center our discussion on Chapter 7 bankruptcy and Chapter 13 bankruptcy.
Chapter 11 and Chapter 12 bankruptcy are mainly used by corporations and family farmers respectively.

The 2 different chapters of bankruptcy and their own individualistic treatment of debts!

The biggest fear people have when they think of bankruptcy is that they are going to lose everything to the court and creditors in the process.
By everything we definitely mean money, house, cars, personal properties and any other asset the filer has.
But, it’s actually not so!
Bankruptcy has been introduced into the law system to make us realize of our financial mistakes and help us lead a better life afterward!

Here’s what Chapter 7 does:

Firstly, this specific debt relief option, i.e a chapter 7 bankruptcy, is very aggressive and straight forward.
Its aim is to clear your debt mess once and for all. And, if you are filing this chapter, then you need to know that it has the power to liquidate all your assets and sell them off to compensate for your debts.
Chapter 7 has got the reputation of liquidation bankruptcy. But, you can still keep some of your assets as a part of the exemption.
Usually, you get to keep some of the equities on your assets depending on the exemption limit set by either the State or the Federal Government.
Some states might allow you to choose between either Federal Exemptions or State Exemptions, while others will only let you take the State Exemptions.

If you get the choice, then choose the one that lets you exempt or keep most of your properties!

It’s not quite possible to read out all the exemptions out here. For state exemptions read the Nolo’s article, and for Federal exemptions read the Bankrate’s article. They have explained it better and we believe no further explanation is needed.
Chapter 7 bankruptcy wipes out your debts by nearly forgiving most of the unsecured debts, but child support and alimony are exceptions!
On the other hand, tax debts are highly ‘misbehaved’ and they might hold on to your back, even after filing bankruptcy. They are not easily discharged!
Plus, if IRS has imposed any form of tax lien on any asset before the bankruptcy filing, then you might also not be able to sell off that asset in bankruptcy!
Also, Student loans are the toughest form of debt to be discharged in bankruptcy. You will have to show the court that making payments for the student loan will become an excessive financial burden or hardship.
And, that’s what Chapter 7 is talking about.

Now,

Here’s what Chapter 13 does:

Beautifully crafted, it’s easier to qualify for Chapter 13 than for Chapter 7.
Chapter 13 is also called reorganization bankruptcy, one that gives you time to manage debts over a spread out payment plan!
But, unlike Chapter 7 we won’t be selling off or liquidating assets, as we don’t need to! A debt repayment plan will be laid down and you will be paying off debts in a longer duration with systematic payments.
In Chapter 13 (also in Chapter 7… remembered to mention), an automatic stay will be imposed on you that will bar all creditors and collectors from making any attempt to collect debts from you.
But, secured debts might behave in some other way, and a secured debtor can file a motion of relief to lift your automatic stay!

Any other creditor can also do the same thing but the norms for filing such a motion is not easy to meet!
Discuss with an advocate about automatic stay and motion of relief, to understand the concepts in more detail.

Chapter 13 Bankruptcy, however, may or may not forgive your debts, which depends on their level of priority. But you can expect to see some of your low priority unsecured debts getting forgiven if you can show some type of hardship in making their payments!
Either way, both in Chapter 7 and Chapter 13, the secured debts have no chance of forgiving!
In fact, if you can’t carry on with payments according to the repayment plan, given in chapter 13, then there will be chances of foreclosure!
But, here’s one tip: Always try to file a no-asset bankruptcy (do your own research), if going for Chapter 7!!! In Chapter 13 however, try to carry on with your secured debt payments as per the repayment plan, to keep your property.
But, whatever it is, you can only keep your property if you can make the payments. Be it even bankruptcy.

Effect of ‘Bankruptcy’ on your ‘Social Health And Life’, and how you should respond to the new call:

If you are planning to file bankruptcy, then you must take it seriously, for it’s about to get a serious grip on you.
Bankruptcy is not just a financial term, that’s only expressed in numbers and dollars. It’s a deep event, that has a deep impact on your life.
Bankruptcy will change your life. It’s like a new beginning that will help you to realize about things, that you never quite understood before. It’s the depression I am speaking mate. It’s the ‘Significant Low’ that comes after the fuming ‘High Life’, you have led.
One wise person told me, to have fun, till the limit I wanted to! And then, when I would realize the mistakes, I should not repeat them. You can keep on doing mistakes till you yourself realize them.
And, bankruptcy exactly does that. It makes you realize your financial mistakes, it makes you understand your status, it makes you understand your ground, and most importantly it teaches you some big lessons.
Try to take the Bankruptcy Depression positively.

But, things might not be that easy either.

Bankruptcy affects your social health! People around you will start to behave and act differently. And, you will definitely notice them, for those changes will be highly noticeable.
Bankruptcy might promise you a new life, financially.
It will get rid of your debts and will make you debt free.
But, it does not guarantee you a happy social life.
However, you can always make things go your way if you are ready to accept changes and can be positive!
There are so many people who were actually benefited from bankruptcy. Slowly and steadily they tried out new sources of income. Got more money coming in. Started to practice new money habits. Planned on investments and made nice wealth overtime.
You can also do the same.
There’s absolutely no reason to withdraw yourself from social activities if your own people start to isolate you.
Time will give your options. There’s nothing to be shy, ashamed, or guilty conscious, just because you went bankrupt. It is for the help and benefit of the general people, do our law has bankruptcy in it.
It’s good that you have realized, and are ready to rectify your money habits.
It’s a good sign!
It means you are human, and therefore comprehending ethics!

Even if you feel, that you want to avoid bankruptcy, then I would say, you should choose debt consolidation or debt settlement.

They are far easier to go with, with no social health injury attached!
For more details on your case, please talk to a nearby advocate, or join online forums to discuss with other people, who are going through the same problems.
Some good online finance forum discussions can be found on:
Reddit.com
FICO Forum
Bankruptcy Forum
Debt Consolidation Care Forum
Also, you can start a discussion On Stack Exchange or Quora!

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