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Bankruptcy or Settlement?

Bankruptcy or settlement: Which one will be the right option in case of credit card debt?

Bankruptcy and settlement, these are two feasible ways to eliminate your credit card debt. Each process has its own pros and cons. Therefore, you need to be careful while taking the right decision according to your current financial state. If you are financially crippled and struggling to pay off your debt then contemplating to settle credit card debt in this situation might not be wise. So it is crucial to select the right option that will fetch you a fruitful result.

Credit Card Debt in Chapter 7

If you are filing under chapter 7 bankruptcy then your unsecured debts are discharged and you are relieved of your creditors pursuing you for payment. A court appointed trustee confiscates your non exempt property. The fund collected from the liquidation of the property is disbursed among the creditors and the remaining debt is forgiven. Therefore, you can lose your valuable assets on filing chapter 7 bankruptcy. You’ll have to close your credit card accounts under this chapter. However, filing bankruptcy can blemish your credit report.

Unsecured Debt in Chapter 13

Under chapter 13 bankruptcy, trustee redesigns a repayment plan for the filers according to their financial state to help them to pay off the debt. In case of chapter 13 bankruptcy your assets are secured and you have pay off your debts at a reasonable amount. The creditors will not harass and repossess your assets as long you are making payments on time, according to the court approved debt repayment plan. After the end of the repayment plan the remnant debts are expunged by the court. As chapter 13 has an adverse effect on your credit score, your credit card accounts will be closed. But you can negotiate with your lender to rebuild your credit rating after the successful completion of the bankruptcy process.

Credit Card Settlement

Credit card settlement is about settling your debt with the credit card company and you make a single payment on your outstanding dues while the remaining debts are wiped out. If you settle your credit card then you have to pay as less as half the balance on your outstanding balance. Settling your debts might partially affect your credit report but if your credit card company reports to credit bureaus that your account is paid off then it might boost your credit rating. But the amount that you save after settling the debt will come under taxable income. With the settlement of the debt your credit account will be closed, therefore, your credit score will drop.

Filing Bankruptcy
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Bankruptcy Alternatives
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