Is Filing Bankruptcy the Best Way to Eliminate Unsecured Debt or the Only Way?

Over the last couple years just about every American has gotten an earful about debt and how to deal with it. When people think of unsecured debt, they typically think of eliminating it by filing bankruptcy. With the Internet becoming a mainstream media tool, there are a lot of opinions out there that confuses the average Joe. That's why many people dealing with unsecured debt wonder if filing bankruptcy is the best way or the only way to really deal with it. While Chapter 7 bankruptcy is king when it comes to removing unsecured debt, it's not always necessary. Everyone's situation is different and bankruptcy isn't always the best option for everyone. Everyone is always looking for a one-size-fits-all way to do just about everything in their life. When it comes to financial matters, there are different opinions and different ways to get the job done, some of them being easier than others.

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When looking at the options there are four basic ways to eliminate unsecured debt.

The first and least popular is they negotiate with the same creditors that have been calling you names on the phone. A person can do this themselves with relative success, but usually the creditors will not even talk to the individual and how they are months behind. There are credit counseling agencies that try and negotiate debt management plans to work for the individual. Some of these are nonprofits and will contact the creditors to reduce the interest and payments so the person can get caught up. Some of these companies will try and create the one-size-fits-all payment plan and divvy up the money to the creditors. While this might work for small amounts of debt, for someone that has a large amount of credit card debt it would take them the rest of their lives to pay it off.

The second is similar to the first but settles the accounts for a percentage of the outstanding debt. This is a debt settlement company. These companies will have the individual send money to them and when they get a substantial amount built up, they will call the creditors and offer a settlement of the debt that is owed. Typically, most creditors settle for 50%, but some of them will accept a little less. The problem with this is, it is completely unregulated and there have been horror stories of individuals sending all their money to the debt settlement company and no longer paying their bills. All of a sudden, the company disappears and the person is left holding the bag. In today's economy, creditors have become very aggressive with collection tactics and when someone gets behind on their payments, they have no problem suing the individual to get a judgment against them. When hiring a debt settlement company, during the period of time that they stop paying their bills, they are putting a big target on themselves for the creditors.

The third option is do nothing and wait for the creditors to sue you. This takes a lot of hutzpah. The creditors no longer play nice with debtors as they did in the past. Some sell off the debt quickly to debt buyers for pennies on the dollar so they could write it off. Others will have their legal department file a lawsuit to get a judgment against the individual for a wage garnishment or to attach property. The worst is to get connected with the debt collection company that ends up being like a bad rash that won't go away.

The last and most popular option is filing bankruptcy. When it comes to unsecured debt Chapter 7 bankruptcy is king. Filing Chapter 7 is the quickest and fastest way to eliminate a large amount of unsecured debt. There is no limit to the amount of debt that can be included in the bankruptcy discharge. When filing bankruptcy, the automatic stay is put in place stopping creditors from all collection activity including foreclosure, lawsuits, judgments and wage garnishments. They can't even call the debtor anymore. If there is something to be said, they will have to call the bankruptcy lawyer and discuss it with them. If the creditor decides to continue to push their luck, the bankruptcy lawyer can report the creditor to the bankruptcy judge and ask for damages. Out of all the options, this is the only one that has the power of the US legal system and protects the consumer from unreasonable creditors.

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