How Does Debt Settlement Affect Your Credit Score?

Although many people use debt settlement to eliminate their debt because they believe that their decision is better than filing for bankruptcy, it doesn’t always work out that way. When using debt settlement to avoid filing bankruptcy, it depends heavily on how creditors report the settlement after negotiating with them. If it’s not in writing, some people after debt settlement have complained that creditors have reported it as a charge off, which stays on your credit report for up to seven years, and went back on their word. Getting all the terms of the negotiations in writing is very important to be able to challenge the way a creditor reports it after the debt settlement.

A Chapter 13 bankruptcy stays on one’s credit report for about seven years and a Chapter 7 bankruptcy will stay on the credit report for up to 10 years. It becomes frustrating when one negotiates with the creditor to settle their debt and to protect their credit from a bankruptcy filing being reported and the creditor slaughters them. Some creditors after the debt settlement process have even gone as far as sending an IRS form 1099C to make the debtor responsible for the balance they didn’t pay. Once again, many have said if they had known this there would have been a bankruptcy filing and the creditor would receive nothing. Getting the terms of the negotiation in writing will help keep the creditor’s honest and make sure they live up to their side of the bargain. Creditors should be happy that someone would pay them something over filing for bankruptcy and not go back on their word. That goes back to what a bankruptcy attorney will tell you, that creditors are not your friends.

Getting answers to those tough bankruptcy questions needs to be thought of before you make a decision when it comes to your financial problems. Finding the answers to help you understand your situation more clearly can help you make an informed decision about filing bankruptcy. Take a minute to call or fill out the form to have a FREE NO OBLIGATION CONSULTATION with a bankruptcy attorney in your area.