Bankrutpcy vs Debt Setlement: Your Honor

When it comes to elimination of huge debts people either think of filing for chapter 7 bankruptcy or to opt for debt settlements. Regardless of the law a settlement is always considered to be better than filing a bankruptcy. With introduction of new law things will change to a certain level but financial settlement will still continue to be a better option for creditors as well as the debtors.

New law vs. Old law of bankruptcy

The financial institutions were never in favor of the old bankruptcy law as they could not recover anything from the person who filed bankruptcy under chapter 7. In case the debtor qualified under chapter 13 of the bankruptcy they still had to wait for the specified period to recover certain amount of their debt. The debtors preferred settlement more than bankruptcy. Bankruptcy can stay on their credit reports for a period of 10 years which is a very long time span. To some extent the new law is certainly in favor of creditors as more and more people will be forced to file bankruptcy under chapter 13 which means that the creditors would be able to recover at least some portion of their lending.

Debt settlement negations will continue

Even with new bankruptcy law the settlement still remains a better option for creditors as well as debtors. Debt settlements lower the debtor's credit score but this is preferred over bankruptcy staying on their credit report for a longer time span. One might feel that with new law for bankruptcy creditors will not be so flexible for settlements. On the contrary no drastic effect would be there on the negotiations for the financial settlements. There are many reasons for this. With new law if the person qualifies for chapter 7 the creditors get nothing. Even if he qualifies for chapter 13 then also the creditors have to wait for a period of 5 years before they could recover 30 to 50 percent of debt. If they are in a position to recover the same amount in a lesser time span by through the debt settlement option they would naturally prefer it.

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Originally posted 2010-01-27 05:41:14. Republished by Blog Post Promoter

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