Last Updated on Feb 25, 2020 by James W

If you have taken huge credit from many lenders, then it may seem to you literally impossible to repay them back. In such a situation it becomes tough for you to decide that whether you should opt for a debt settlement letters or file a bankruptcy to repay your debts. Thus, before you reach up to any conclusion you must know the fact that though both of these processes have been designed to offer you debt relief but they work very differently. Hence, you should try to understand theses two processes in detail to make your final decision.

  • Are you aware of the two debt relief procedures?


  1. Debt settlement plan:

When you’ll enroll in a debt settlement program, at first your financial records will be assessed. Then, the representative of the company will negotiate with your creditors to reduce the outstanding balance on your credit cards up to (30- 70) %. After negotiation is done, you have to build up the settled amount within a certain period of time and pay it to your settlement company. The company will accordingly distribute the amount to your creditors. This way you’ll be able to repay your debts within 12- 36 months.

  1. Bankruptcy:

In order to get rid of your debts and make a fresh financial start, you can file a bankruptcy under chapter 7 or chapter 13. If you file a chapter 7 bankruptcy, then according to the debt laws of New Mexico you’ll be able to list all your debts except your child support, student loan, alimony debts. You should know that the bankruptcy exemption of your country includes real estate up to $30000, personal belongings worth $2500, any vehicle valued up to $4000 and tools of trade up to the value of $1500. In your state you can even follow the federal bankruptcy option to release your burden.

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If you have sufficient earning to meet your monthly expenses and pay some money towards your debt, then you’re eligible to file a chapter 13 bankruptcy. When you’ll apply for it, you have to appoint a bankruptcy lawyer of Albuquerque who will assess your list of assets and debts and devise a repayment plan of your debts. After this, a court appointed trustee will consult with your creditors and then approve your repayment plan. Following the repayment plan you have to pay off your debts within 5 years.

  • How will the two debt relief plan affect your credit score?

Before you opt for any debt relief option, it is important for you to measure to what length your credit score gets hurt. Filling a bankruptcy will lower your credit score to almost 250 points. Bankruptcy will remain on your credit report for 7-10 years and will prevent you from getting any credit in future. Whereas, debt settlement will lower your credit score, but if you keep on making payments on time then you can again build it up.

Thus, it can be said that debt settlement is always a favorable debt relief option in comparison to bankruptcy. It’s because, debt settlement will help you get rid of your debts as well as prevent you from loosing your personal property such as home, vehicle and many more. It won’t damage your credit score as badly as bankruptcy does. Hence, you should explore all the possible debt relief options before you file a bankruptcy.


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