If you are currently researching solutions for your debt problems, you are probably already aware that debt settlement and bankruptcy are two of the most popular choices. You may be wondering which one of these will have a more negative impact on your credit score. Unfortunately, there is no one answer to this question. The amount of negative impact on your credit score will greatly depend on the specifics of your current financial situation, on the type of bankruptcy you file, and on the way in which you choose to go about the debt settlement process.

When filing for bankruptcy, there will usually be a lot of different types to consider. The two most common are Chapter 13 Bankruptcy and Chapter 7 Bankruptcy. In some cases or situations, usually when your current monthly income surpasses the average (based on family size) current monthly income, you may be ineligible for Chapter 7 Bankruptcy. Chapter 13 Bankruptcy will simply require you to have enough disposable income coming in to meet the terms of the bankruptcy agreement and to pay off your debts in a pre-specified amount of time.  The type of bankruptcy that you file will determine what kind of impact the procedure will have on your credit report. A Chapter 7 Bankruptcy will remain on your report for a period of ten years, while a Chapter 13 Bankruptcy will only remain for seven years. Though this may seem like a long time, it is fairly easy to rebuild your credit score after bankruptcy. In some cases, it may even improve your credit score, since it is better to have one bankruptcy than several accumulating and constantly unpaid debts.

Debt settlement, also known as debt negotiation, is an entirely different process. Debt settlement will force creditors to reduce the balance of your debts. You, however, will be responsible for paying this reduced amount in full. There is no pre determined time for how long this will stay on your credit report. This depends on many factors such as the amount of the debt and on the amount of the settlement and how close they are to one another. It is important to note, however, that debt settlement can be costly, especially if you go about it by using a high cost company. For some people, having to pay the costs associated with debt settlement can put them right back into debt and leave them without a solution to their problems.

The best thing to do is to speak with a financial advisor and properly assess your situation in order to find the best solution for you. For some people, bankruptcy will be the right choice, while debt settlement might be the perfect answer for others. In some cases, neither of these options may be smart, and you may want to look into other alternatives. Whatever you do, make sure it will give you the most benefit with the least negative impact on your credit score.