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The Difference Between Bankruptcy and Collection

By Ruth Racey
Published: Wednesday, April 7th, 2010

There are times wherein you have already been accumulating a large amount of debt, that you actually have serious difficulties in paying it. Remember that it is actually a very common incident among consumers who uses credit cards; due to the fact that credit cards is much more convenient than using cash whenever you purchase goods and services. In this case, no wonder, many consumers are actually falling into the trap of overspending, which is also the reason why a lot of consumers need debt management help. 

One of the most common debt management help that is being referred to consumers who are already debt ridden is having their respective debts negotiated with their respective credit card companies. In this case, most credit card companies are actually very willing to negotiate the debt of their costumers, for this will be more beneficial for them rather than facing the losses that is involved in customers who are forced to file bankruptcy. This is the reason why debt negotiating is a very helpful debt management help. However, some credit companies want to have the payment right away. In this case, you actually have three options: 

  • Chapter 7 Bankruptcy
  • Chapter 13 Bankruptcy
  • Debt Collection 

In chapter 7 bankruptcy, you are actually going to file a bankruptcy wherein all of your debts will be cleared. However, it is not applicable to all consumers who are debt ridden. In this case, only those people who have an income below the state median will qualify to file a chapter 7 bankruptcy. This has been effect since 2005, where the Bankruptcy Abuse Prevention and Consumer Protection Act were passed in legislation. Otherwise, when you have an income that is above the state median, you will have to apply for chapter 13 bankruptcies. 

In chapter 13 bankruptcy, you still have to pay for your debts over time, wherein there are state appointed officials which will administer your payment, as well as where would you pay. In addition, you will also have restrictions regarding your financial activities. 

In debt collection, some creditors will actually offer you lower payments from you, and will thus enable them to collect what money you actually have. This is one of the best debt management help that you can follow. This is because of the fact that you have a choice not to file bankruptcy, and still settle your debt from your credit card company.

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