There are more consumers and small businesses on the verge of credit debt bankruptcy than ever before. For those that are experiencing a severe financial hardship it may seem as though filing bankruptcy is the only option. While filing bankruptcy would have been an appropriate option is the past, new federal laws made other options such as debt settlement much more financially attractive.
These new federal laws effectively prohibit debt settlement companies from collecting upfront fees from their clients. Now consumers and small businesses will not have to pay a dime until their debts actually settle for an acceptable amount. Typically the company must be able to negotiate a settlement for at least 60% of your balance. This means that if you have $20,000 in credit card debt and they can't settle the balance for at least $12,000, then you won't have to pay a dime.
Filing for credit debt bankruptcy is not nearly as advantageous as it used to be. New bankruptcy laws that were passed in 2005 have made filing and getting approved for Ch. 7 bankruptcy much more difficult. Ch. 7 is consider the "clean slate" bankruptcy where the majority of your debts are completely forgiven. This used to be a financially attractive option. Even though you would get a lower credit score you would get almost all your unsecured debts legally forgiven. Now it is much more difficult to qualify for. You pretty much have to have no income coming in and a negative net worth to get accepted for Ch. 7 now.
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