Servicing personal debt repayments isn't always sustainable, especially when personal circumstances change, so many people are seeking an alternative to bankruptcy to discharge debt. It is important to appreciate that the best debt solution can be only be used pay off debt that isn't secured on an item of value, such as a house or car. Should a repossession deficiency exist after that collateral has been sold, a debt solution can be used to clear this. Also, student loan debt cannot be written off.
Alternatives to Bankruptcy That Can Discharge Debt
A debt management plan or debt settlement program can still be used to clear unsecured loans, unpaid credit card debt, repossession deficiencies and other unpaid bills. Debt relief programs aim to pay off debt and alleviate much of the pressure and anxiety that financial difficulties bring. This is achieved through a reduced monthly debt repayment and/or a reduction to the amount that is owed. The best debt solution for the individual will normally depend upon how much money is owed.
Pay Off Debt with a Debt Relief Program
- Debt management plan. Following a budgetary analysis, an affordable monthly repayment will be established for a debt management plan. Rather than making lots of small payments to creditors, just one is sent to an intermediary and they will distribute the money to creditors on a pro rata basis. There is no reduction to the principal so repayments will continue until the debt is completely cleared. The majority of lenders will freeze further interest and charges to help pay off debt more quickly. There is a 15% management charge.
- Debt settlement program. An intermediary will negotiate with creditors in order to achieve a reduction to the principal of up to 50%. The client will then make a repayment each month for a 12, 24 or 36 month period. It may be possible to extend the term, but it decreases the likelihood of creditor acceptance. Once the final repayment has been made for a debt settlement program, this will discharge debt. There is also a 15% management charge.
How Will Credit Scores Be Affected by a Bankruptcy Alternative?
Any individual who enters a debt relief program will need to have already defaulted on one or more credit agreements. If this isn't the case, no creditor will be prepared to accept a revised offer. Defaults, debt management plans and debt settlement programs will also show on personal credit reports for a period of seven years. Whilst this may sounds punitive, filing for bankruptcy under chapter 7 will show for 10 years. Although no debt solution will have a positive effect on the borrower's credit rating, paying back some of the money owed will be looked upon more favorably by lenders in the future.
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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