What Is the Difference of a Charge-Off or a Bankruptcy on My Credit Report?

Debt Relief

Over the recent years there has been a huge interest in debt settlement. After the financial collapse back in 2007 many Americans were looking for ways to eliminate their debt without filing bankruptcy. Debt settlement fit the bill and many Americans signed up for these services. Debt settlement companies promised that it would not hurt their credit and all debts would be settled for a fraction of what was owed. What people don’t realize is creditors are the ones that make the decision on whether or not to accept a settlement. While many of the creditors will accept a portion, some of them played dirty tricks on the backside. One thing they have been known to do is to report the settled debt as a charge-off. The charge-off will stay on one’s credit report for seven years and stands out just like the scarlet B of a bankruptcy. A Chapter 7 bankruptcy will stay on one’s credit report for up to 10 years and a Chapter 13 usually about seven years. So in the big scheme of things the damage to one’s credit is very similar. Some will say they creditors will give them a pass because they tried to pay back at least a portion of the debt, I don’t believe that so unless someone is trying to get a mortgage and needs to explain their financial past in detail.

The bottom line is, when someone thought they were doing the right thing by avoiding a bankruptcy filing and paying a portion of their debt off, they just got the shaft. The debt settlement industry is completely unregulated and although it will work for some, there are a lot of horror stories out there. Typically, if a person has less than $10,000 in unsecured debt, debt settlement would be fine. Just looking at it from the numbers point of view, if a debt settlement will wipe out 50% of one’s debt, they would have to come up with $5000 to settle the debt. In the case of filing Chapter 7 bankruptcy, the same person would be responsible to pay for filing fees, a pre-bankruptcy credit counseling course and a post bankruptcy financial management course. Let’s not forget the fee to hire a bankruptcy attorney. All of this should run no more than $2500 total, really quite a value when comparing the two. For someone that has a larger amount of debt, nothing beats filing Chapter 7 bankruptcy to eliminate the debt. One thing you know for sure, after you get the bankruptcy discharge in the mail, the debt is completely gone and never will resurface again. When considering the cost of filing Chapter 7 bankruptcy, the cost of hiring a bankruptcy attorney and paying the court fees is very minimal when compared to the amount of debt that will be wiped out the discharge. Many people try to do the right thing by using debt settlement only to find out filing for bankruptcy still might be in their future.