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The depressed US economy and the implosion of real estate market nationwide have pressed consumers to the point where it is impossible for them to keep their payments current on credit card and tons of consumer debt. For consumers seeking relief from crushing debt loads there is an assortment of debt relief options available.  These options include bankruptcy, debt consolidation, debt counseling, and debt settlement programs. Of these options bankruptcy and debt settlement programs are the options most often selected due to their due to their advantages in reducing current payments and collection actions by creditors, as well as the major reductions in outstanding debt balances.

Bankruptcy is most commonly filed as a chapter seven or chapter thirteen. A chapter seven is the superior option, with debt being reduced or even dismissed entirely in some fortunate cases. However, it’s not up to you to decide what chapter you file under! Since 2005, significant legal revisions have made it so that the court decides which chapter a bankruptcy is filed under, not the debtor. A means test, which is the first procedure to start up a proper bankruptcy filing, evaluates your income and expenses versus the standards for redeeming the debt. Falling short of the IRS-set standards of the means test will allow you to file a chapter seven. However, if you can even pay as little as a hundred dollars monthly towards your debt, then you will have to deal with a chapter thirteen filing instead.

Chapter thirteen is the most common form of bankruptcy filing today due to the restrictions on getting a chapter seven. It’s not nearly as friendly as a chapter seven, and the whole process is overseen by a legal representative of the court. No one wants to have a stranger checking up on their daily, weekly, or monthly budgets. Furthermore, the chances of getting the kind of debt reduction that a chapter seven grants is slim with a chapter thirteen. This is why recently more people are striving to avoid bankruptcy filings and go for debt settlements instead.

Debt settlement, also called debt negotiation, is a somewhat new and hard line way of debt relief that gives a lot of advantages over counseling, consolidation, and bankruptcy. First, the benefit the borrower sees immediately is that their payments are about half when all their bills are put into a settlement compared to their current payments. The types of credit accounts that you can place into a settlement are credit cards, department store accounts, unpaid utilities, doctor bills, and additional kinds of unsecured debt. Additional pros of this method are: If you get your debts settled, you can stop your salary from being attached or garnished -  If you let your creditors know you’re trying to settle your bills with this procedure, they will be assured they will get at least some of the money you owe them. Because of this, they aren’t as likely to sue you while the settlement process is ongoing. Debt elimination – Existing amounts can go down by between 40 to 70%, depending on your account holder. Most of the time, the combined accounts in a settlement get taken down by 50%.

Settlement will generally result in an overall debt reduction of fifty percent, but it can climb as high as almost three-fourths of your total debt in exceptional circumstances. Combined with the reduction in monthly payments, this results in less financial pressure, allowing you to pay things back and get back to zero more quickly for a fresh start. Most settlement payment processes will run for no longer than four years, but within that time period are reasonably flexible according to the needs of the debtor. This may seem like an extremely short amount of time for large loans such as mortgages, but the loan and payment reductions allow this kind of time limit to be practical.

Debt elimination programs can reduce outstanding balances by 40 to 70%, depending on the specific creditor. In general the average account included in a settlement will be reduced by 50%. The process provides added security for assets that represent a security interest. By reducing payments and eliminating a major portion of unsecured debt relieves pressure on secured assets. Debt settlement is often combined with mortgage loan modifications to help homeowners reduce their total payments toward debt  and get for new mortgage terms. Most debt elimination programs terminate within 48 months, the same account with minimum payment could take over 20 years to payoff. The settlement of accounts allows for borrowers to begin the process of re-building their credit scores faster than bankruptcy which can remain on a consumer’s credit report for up to ten years.

This article has spent a fair amount of time praising debt settlement and pointing out the disadvantages of bankruptcy. But the truth is, there is no one right procedure that fits all people in all circumstances. You should analyze your situation either on your own or with the help of a financial expert, and then make a decision about what procedure is most likely to give you the best possible outcome.