Unfortunately, things can happen in a person's life that can severely change their ability to satisfy their debts, such as a death in the family or losing their job. For these people, not only do they have to deal with whatever tragedy has befallen them, they also have to deal with angry creditors who have no sympathy for their plight.



People who find themselves in these situations feel frustrated because there really doesn't seem like there is a good solution. The companies that they owe money to constantly call them, or send their debts to a credit agency that may harass them even more in an effort to collect the debt. To get out of this terrible situation, some people may consider filing a chapter 7 bankruptcy with the hopes of wiping out their debt and starting over again with a clean slate.

However, the new bankruptcy laws can make this difficult, since now there are income levels that must be met before this is allowed to happen. The people filing for them must also take credit counseling classes prior to the debts being discharged. Other people may consider filing a chapter 11 bankruptcy and pay the debts off over a period of time. The money is paid to a trustee of the court, but even though an effort is being made to repay the debt, it could still take a long time and in the meantime the person's credit is totally ruined for up to a decade.

A third option is to try to settle the debt for an amount that is less than the one owed. It may seem like a good idea, but there are many things that the people who attempt this are not aware of. It's not easy to get a company to agree to accept less than the full amount due. Even if you do get them to agree, you are still not that much better off. As an example, if you owe a creditor $10,000 and get them to agree to accept $5,000, the additional $5000 left over is subject to taxation, since it is looked at as actual income that you received. Now you may be placed in a tax bracket that is higher than the one you are usually in and may have to pay extra taxes to the government, plus your credit is still adversely affected.

It is far better to contact the creditor and see if they will work with you, perhaps lowering the interest rate or accepting lower payments to help you pay off your debt. This way you can repay what you owe and hopefully not make your credit standing worse than it already is.