The two most popular debt relief methods are insolvency and liability settlement. These two debt relief options have gained popularity because these two options are the most commonly exercised options.
Previously bankruptcy had a lot of popularity as people gained complete relief from the entire liability amount without paying back a penny to the creditor. Every body wants this kind of relief as people do not have enough money or have no money at all to clear their debts. Although this option provides a huge benefit but it comes with the cost of hampering the economic growth and so was the case in America. When recession struck the economy and debtors could not pay off their debts; they started using insolvency to solve their financial issues. People mostly filed under chapter 7 as they gained relief without any repayment of the borrowed amount according to this chapter.
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When this happened; the creditors started hesitating in providing any kind of loan. People with very positive credit history were even rejected loans as creditors felt that they will end up losing all the money due to insolvency and they will have to wind up their businesses. When there was no lending; the investment in the economy depreciated and the economy of America started declining.
Government became aware of the fact stated above and they changed the laws of insolvency. According to the new laws a debtor has top enroll him in a counseling program before filing. Every body was not eligible or could not qualify for chapter 7 of insolvency. People earning below the minimum wage limit of a certain state were only allowed to file under chapter 7 and those who were earning more than the minimum wage limit over the past 6 months were allowed to file under chapter 13. According to chapter 13; the loan repayment time and interest rates are re scheduled but the debtor has to pay the entire amount.
These laws came out to be expensive for debtors and more and more debtors started to look for other liability elimination methods. Most of the potential insolvency filers opted for liability settlement. This was because one had to pay a lot of money for filing. They had to pay enrollment fees to the counseling services and then they had to hire a lawyer for the court case. Under negative economic situation it is very hard to make all the payments stated above; so many people started using liability negotiations.
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