Understanding Debt Settlement vs. Bankruptcy

As many people attempt to sort through the remains of their financial life in the wake of the Great Recession and the real estate debacle of 2008, many of them who have never had to deal with debt have never had the occasion to differentiate between the different types of payback plans that are actually available within the financial services industry.

Too many people think that they must immediately declare bankruptcy, which can leave scathing white marks on their financial records for years to come. Nothing could be further from the truth. Below we will expound on some of the differences between debt settlement, a bankruptcy alternative, and bankruptcy itself.

Debt settlement

A debt settlement program usually entails the hiring of professional debt company. However, there are no legal burdens to bear, and usually no lawyers to pay, because debt settlement is not a legal process, as is bankruptcy. (Debt settlement companies are sometimes scams, learn more at the FTC website).

What a professional debt company will do when you initiate a debt settlement procedure is first attempt to re-budget your personal and business expenses and a professional manner. The debt settlement company will see without a doubt whether there is any wiggle room in your monthly budget for paying back your loans and debts in a faster way to save money for you on interest rate payments and late fees. If there is, the debt settlement company will find.

The other side of debt settlement is getting in touch with your creditors. Once your debt settlement company has organized your finances in a way that a creditor can understand it, you are much more likely to receive leeway from that creditor, up to and including debt forgiveness. You must remember that any situations a creditor is willing to take 80% of full payment rather than 0% of an overbearing payment. They want to help you as much as you want to help yourself.

Bankruptcy

The main difference between the bankruptcy procedure and the debt settlement procedure is that bankruptcy involves the legal system. Bankruptcy is a completely legal process by which the courts will decide who pays back what to whom. This is sometimes necessary when someone has gotten so far in over their head that no debt settlement company can actually help them, but this situation is actually much less likely to occur than you might think.

Bankruptcy filings can also give you much needed time to get your finances together if you cannot hire a debt settlement company right off the bat. However, what many people do not know about bankruptcy hearings is that the court will often require a debtor to hire a debt settlement company. Therefore, it is often much easier on a creditor to try the debt settlement route beforehand.

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