Debt Settlement Plan as a Bankruptcy Alternative: Negotiating Credit Card Debt to Reduce Monthly Payments

Individuals with excessive credit card debt or who are unable to pay medical bills are searching for a viable bankruptcy alternative. A debt settlement plan can help someone to become debt-free. Performing plenty of research at an early stage can enable someone to avoid a costly financial mistake and other related problems further down-the-line. Declaring bankruptcy may be the right debt solution for those who have minimal disposable income, few non-exempt assets, or seek help for foreclosure.

How a Debt Settlement Plan Reduces Debt

It involves downwardly negotiating credit card debt in order to reduce the amount owed by up to 50%. Once the intermediary has managed to secure a reduction in the principal, an affordable monthly payment is made to creditors for a 12 to 36 month period. At the end of the term, any remaining unsecured debt is written-off which gives the debtor a completely fresh start.

Does a Better Bankruptcy Alternative Exist to Filing Under Chapter 7?

Those who have an income below the state median and few non-exempt assets (such as a luxury car, valuable collection, etc.) are likely to be best suited by Chapter 7 Bankruptcy. It is possible to be free from debt in as little as 4 to 6 months without the need for any monthly payments to creditors. Those who have filed under Chapter 7 during the past six years cannot do so again during this timeframe.

Chapter 13 Bankruptcy

Not everyone is able to comply under the new bankruptcy laws; this means that many individuals turn to a bankruptcy alternative or file under a different chapter. Those who don't qualify under Chapter 7 may be able to clear excessive credit card debt under Chapter 13 over a 3-5 year period. A payment will be made to creditors each month and any unpaid debt is written-off at the end of the term. Unlike a debt settlement plan, bankruptcy provides the debtor with full legal protection from creditors for the duration.

Help for Foreclosure

Most debt solutions do not provide any legal protection against home foreclosure. Filing for bankruptcy enables someone to clear unsecured debts and devise an affordable way of reducing mortgage arrears. Remember that it could be possible to clear excessive credit card debt with a debt settlement plan and make mortgage payments more affordable through a loan modification. Government help is now available so it is sensible to explore this option first.

Is a Debt Settlement Plan Better Than Filing Under Chapter 13?

Whilst the same legal protection doesn't exist, downwardly negotiating credit card debt with a debt settlement plan can offer a solution to financial difficulties without all the formalities and associated stigma. Under both debt solutions, a monthly payment is offered to creditors. However, this bankruptcy alternative could allow someone to become debt-free up to two years earlier.

A debt settlement plan could by a suitable bankruptcy alternative. Negotiating credit card debt downwards through an intermediary is normally most suitable for those who don’t owe that much or who don't qualify under existing Chapter 7 bankruptcy rules. Talk to a credit counselor before deciding what is the most effective way to clear excessive credit card debt.