When Is Bankruptcy Not the Best Option?

Interviewer: Interesting. You mentioned there are alternatives to bankruptcy. So when would you not be suitable for someone, and what else could they do besides file bankruptcy?

Some Credit Card Companies Are Willing to Work with You to Reduce Debt

Vance: Well, first of all, if I have a person that comes in and they are employed. They have a job making the median income for this area, and they have a less than $10,000 in credit card debt, and they have a full time job, and their other bills are not too high, I would tell them, "Look, call these creditors and see if they will work with you."

Are Debt Settlement Companies a Viable Option to Reduce Your Debt?

If you have a full time job, if you have less than $10,000 of credit card debt, you should be able to negotiate with the credit card companies to reduce your interest rate, or reduce your payment. Most of the time, people wanting to negotiate with credit card companies will seek the help of debt settlement companies.

Many Times, Bankruptcy Is a Better Option to Reduce Debt

You've seen them advertised on TV. Come and see us, we can reduce the credit card payment. Well, people that go do that have generally a lot more credit than $10,000. If you have more than that, then the best thing to do, because your credit is going to be just as bad for seeking a debt settlement company as filing bankruptcy. Your credit damage will be the same.

Using a Debt Settlement Company Results in Paying Back More Debt than You Would by Filing a Chapter 13 Bankruptcy

Normally if you go to a debt settlement company, you're paying back more debt than what you would through a Chapter 13 bankruptcy or a Chapter 7. With a Chapter 7 you normally don't pay anything back.

Interviewer: One thing to think about that I realized, let's say you have $50,000 in debt and you make $50,000 a year, even the most disciplined person in the world would probably only be able to pay down, let's say, $10,000 a year.

In this case, filing for bankruptcy is essentially like leapfrogging ahead financially 5, 10, 20 years because you'd have to spend years just hopefully paying that.