New Bankruptcy Laws - How New Laws For Bankruptcy Make Debt Settlement A Better Option

Online, October 3, 2010 (Newswire.com) - Filing bankruptcy used to be an easy way to eliminate unsecured debt and get a fresh start. However new bankruptcy laws that were recently passed made filing bankruptcy far less advantageous and more difficult to qualify for. As a result of these new bankruptcy laws other debt relief methods have come about to give consumers another option. One of the most popular debt relief methods is known as debt settlement.

Debt settlement or debt negotiation is where creditors of unsecured debt agree to take partial payment and forgive the rest. Creditors typically make debt settlement deals with consumers and small businesses that are on the verge of bankruptcy. They are willing to take partial payment because they know that if the consumer were to be accepted for a Ch. 7 bankruptcy they would likely receive little to none of their money back. 50% of their money back is better than nothing.

Considering the fact that there are more consumers on the verge of bankruptcy than ever before, creditors are making more debt settlement deals than any other time in history. Credit card companies and other creditors of unsecured debt carry the serious risk of losing millions on delinquent accounts. Debt settlement is a legitimate way for creditors to collect money from these delinquent accounts. Plus they get a tax break from the government on the portion they settled off.

The new bankruptcy laws basically make filing for Ch. 7 and getting accepted much more difficult than it used to be. Ch. 7 bankruptcy can be thought of as the "clean slate" bankruptcy where the majority of the debt is legally written off. This used to be a very advantageous for consumers and small businesses to legally eliminate their debt balances.

Now a consumer or small business is much more likely to qualify for Ch. 13 bankruptcy. Ch. 13 basically reorganizes the debts and makes a payment plan to pay back the balance over a period of 4-9 years. This is similar to a debt settlement process with one major difference. The effect on your credit rating will be negatively affected much worse than a debt settlement process.

Typically a bankruptcy filing will affect a credit score for at least 7 years after the case has been closed. With the average bankruptcy case taking 3 years this means that your credit will be negatively affected for around 10 years on average. Debt settlement on the other hand can typically begin to recover their credit in around 2-3 years on average.

Debt settlement has seen a significant growth in cases over the past years which is a direct result of these new bankruptcy laws. Consumers who are experiencing a legitimate financial hardship and don't want to file bankruptcy see debt settlement a legitimate option for debt relief. The average debt settlement in 2009 was negotiated for 50% of the debt balance. This means that consumers are able to eliminate up to 50% of their unsecured debt while creditors are able to collect on delinquent accounts that would have taking a complete loss if the consumer were to file bankruptcy.

There are also other debt relief options available such as credit counseling and debt consolidation. It would be wise to speak with a debt relief specialist that can go over all your options for free. Check out the following link for a free debt relief consultation from a certified financial specialist.

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