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bankruptcy or settling on bad debt charge-offs?

Question: Which is more damaging to ones character: Filing for bankruptcy after several bad debt charge-offs; or settling on the bad debt charge-offs and not filing for bankruptcy. Which one is perceived as more responsible? Seems to me that not filing for bankruptcy leaves the door open to be accused of being a deadbeat while filing for bankruptcy appears as if circumstances were beyond my control. What are your thoughts? Thanks!

Answer: Here in the US, once your bankruptcy is discharged, you are deluged with pre-approved credit cards, can get a car loan immediately (albeit at a high interest rate), and most people can get mortgage loans in 2 years or sooner. That’s the whole point: they shouldn’t. And up to now, they’ve been constrained somewhat by the right of debtors to go into bankruptcy. But now that they’ve managed to change the bankruptcy laws, they’ll own you for life as soon as you’re out of high school.

Sure, smart consumers won’t be affect; nonetheless, I believe it’s an abuse of business power. You need to sort out a few things before making a decision as it is not so cut and dry,

If you have several charged off accounts on your credit report already then bankruptcy probably isn’t going to do much more damage than you have already.

Once an account is “charged off” most CC companies will sell it to an collection agency to get their money back, or portion of it at least. Once the debt is paid there is a chance the CC company or the collection agency may relist the debt as “paid” or “paid closed account” . Keep in mind the several years proceeding charge off are also on your report so any creditor can see you were past 60 days late and heading for trouble.

At this point you have *some* leverage, you can contact the CC company or collection agency and offer to pay the entire amount or perhaps even settle if they will in return erase the late payments and simply list your account as “paid closed account” or “paid closed account-customer request”. This is important as any account that is closed for any reason other than being paid in full (and on time) by customer’s request is a negative. You *must* get this agreement in writing (collection personnel are just out to get what is owed, and will tell you almost anything to get you to pony up).

Bankruptcy is a legal proceeding and beware that many applications for loans, including business and SBA loans will ask if you have *ever* been declared a bankrupt. If planning to purchase a co-op or practice law you may be asked about bankruptcy. In short many people still consider it the mark of the man that he lived up to his responsibilities and paid his debts.

If you are not being threaten with wage garnishment or some other court collection activity you may wish to see if you can work out things with your creditors, if they adopt hard line and start coming after you with process servers and court dates then bankruptcy will stop them dead in their tracks.

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