How to Get Rid of Credit Card Debt with an Attorney

An attorney can offer two legal options for his/her clients to get rid of credit card debt legally. The first is to guide them through a bankruptcy case, and the second is to work out a debt settlement plan. Both options have their pros and cons, and while bankruptcy is the fastest and most effective method, debt settlement may be the better choice for some people.

The Highlights: A Comparison

How Bankruptcy and Debt Settlement Work

Debt Settlement

Debt settlement works by having an attorney create an interest bearing trust account in the name of the debtor into which monthly payments will be made. During this time, the debtor stops paying all credit card payments and instead funnels money into the trust.

Once enough cash has been saved up in the trust account, the attorney will attempt to settle the creditors claims with a lump sum of cash, usually around 35% of the amount due.

The downside is that during the payment period, the credit card companies receive no money, so eventually they take legal action and file suit against the debtor. The debtors attorney will have to postpone, delay and defend the lawsuits long enough to build up enough cash to settle the debts. It can be a tricky method of getting rid of credit card debt, but when done right, it is the best choice for some debtors.

Bankruptcy

Most debtors will file for chapter 7 bankruptcy, which takes about two to three months to complete. Once the bankruptcy petition is filed with the court, an automatic stay goes into effect, legally barring all creditors from taking any actions to collect debt until the case is completed.

The creditors attorney will work out a plan to protect most, if not all of the debtors valuable assets by way of exemptions, reaffirmation and redemption.

Generally speaking, those debts that are secured by property, such as a car loan and mortgage, will not be removed by the bankruptcy, but may be reduced.

Unsecured debts, such as medical bills, credit card debt and personal loans will be discharged, meaning the debtor will never have to repay them and the creditors cannot collect on their claims.

Which is Best?

While bankruptcy is much more effective at getting rid of credit card and other unsecured debts than debt settlement, the impact on the debtors credit score can be significant. Ultimately, it is up to the debtor and his or her attorney to determine which method is the best, given the financial and personal situation.

Talk to an Attorney for a free consultation to find out which options are the best for your situation.