The folks at Fox Business are at it again, dishing out inaccurate personal finance information about debt settlement and bankruptcy.
In a column published on October 10, 2013, Fox Business columnist Jan McNamara addressed the question of whether bankruptcy was preferable to debt settlement.
She begins with the stunningly misinformed blanket statement that, “bankruptcy will damage your credit more than settling your credit card debt. ”
Unfortunately, McNamara forgets a few things along the very short road to her conclusion.
Bankruptcy’s Impact On Your Credit Is Variable
If you’re current on your debt repayment then your credit score is likely pretty good. In this situation, filing for bankruptcy will involve a hit to your credit rating.
But if you’re already past due on your debts then your credit rating is probably in the proverbial toilet. The credit impact of a bankruptcy filing likely won’t be good big because you’re already looking at a poor score.
In other words, look at where you are to see the impact on where you’ll be.
Debt Settlement Stretches Out The Pain
You don’t wake up in the morning, settle your debts by lunch, and enjoy the rest of the day.
The process of debt settlement takes months at best, years at worse. No creditor is going to be willing to give you a good deal on a settlement unless you’re past due on your account, which means the negative credit implications of being past due will drag you down for quite some time.
On the flip side, filing for bankruptcy stops your creditors from reporting the debt as past due. The minute your case is filed, the reporting stops. Depending on the type of bankruptcy case, you could be done in as little as a few months.
Multiple Creditors Makes Debt Settlement Problematic
If you owe money to a single creditor, you can try debt settlement without much trouble. Offer x% as a settlement and either the creditor accepts or declines.
When you have multiple creditors, however, it gets trickier.
Maybe a few creditors settle. Maybe a few don’t. And maybe the ones that don’t settle decide to sue you, getting a judgment and making you reconsider filing for bankruptcy.
In the end, you’ve paid out a bunch of money to settle some debts and you still file for bankruptcy. It’s like getting the worst of both worlds.
Bankruptcy? Debt Settlement? It Depends.
It’s nice to be able to tie things up with a bow, but this situation is neither neat nor pretty.
You can’t know whether bankruptcy is better or worse than debt settlement unless you analyze the entire situation.
Sit down with someone who understands the pros and cons of each solution before deciding.
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