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Settle or file for bankruptcy?

Credit card debt is one major reason that Americans file for personal bankruptcy. This is especially true for business owners, who may have accumulated a significant amount of debt through S corporations and other business models. What happens if your debt is increasing faster than the monthly payments? Should you consider bankruptcy or settlement first?

Experts in Washington, D.C., say that it is unlikely that your debt is truly accelerating past the point of monthly payments; after all, legal reforms have prohibited cards from lowering monthly payments so that the balance of your bill becomes unwieldy. In fact, you are probably only making a small dent in the principal through your monthly minimum payments, a common scenario in today's economy.

Both solutions have the potential to hurt your credit as a business owner or individual borrower, so it is important to consider the many aspects of debt settlement and bankruptcy before making a choice. Settlement, a process in which you negotiate a smaller payment amount that allows lenders to write off their losses, can have a negative effect on your credit report for up to seven years. Chapter 7 bankruptcy could appear on your report for a decade, while Chapter 13 restructuring bankruptcy will also appear for a seven-year term.

If you want to proceed with one of these options, it is generally better to avoid bankruptcy if you can. Working with a debt professional or financial expert can help you learn more about settlement options. In addition, your credit card companies may be willing to make certain concessions that could help keep your credit score relatively high. Be careful, however, if you choose to work with a settlement company, as that industry has been fraught with fraud. Sometimes, working directly with your creditors can be the best practice.

If you are concerned about your ability to pay business or personal debts, do not let the situation spiral out of control. Work with a qualified bankruptcy attorney or financial expert to develop a plan to get your future on track.

Source: www.foxbusiness.com, "Repayment, settlement, bankruptcy: Facing debt from failed business" Elaine Pofeldt, Aug. 07, 2013

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