Like most other states, the Tennessee economy fluctuates. This is also true for most individuals regarding personal finances. Some years are better than others. If a person incurs a lot of credit card debt during challenging financial times, he or she might be considering debt settlement as a solution.
Basics of debt settlement plans
Debt settlement means that a company acts on behalf of an individual who owes money to a lender. This company would set up an account into which the person in question would deposit money over a period of time. When a certain amount of money is in the account, the company would contact the lender and offer a settlement on the person’s debt, an amount which is often lower than what the person owes.
The downside of debt settlement?
While it might sound like a viable option to use when finances have gotten out of hand, a debt settlement plan means that the person who owes money stops paying his or her creditors. Instead, he or she is putting money into the account that is set up through the debt settlement company. This can be problematic because creditors are not receiving any type of payment, which means that the overall amount of debt may increase. The hope is that the creditors will grow tired of waiting for payment and will accept a lump sum settlement for a lower amount.
Several bankruptcy options may be better than a settlement plan
Chapter 7 bankruptcy might fit a person’s needs better than a settlement plan. With this form of debt relief, liquidation of assets takes place, then the proceeds of that process are used to pay off debt.
Chapter 13, on the other hand, does not typically involve asset liquidation because it is a restructured payment plan to which lenders must agree. This enables a person who owes a debt to retain ownership of his or her assets. An experienced bankruptcy law attorney can help determine which debt relief strategy would be most useful in a particular set of circumstances.