When people are considering bankruptcy, they often hear the term ‘debt settlement,’ but are unsure what it is and how it may help them. Put simply, debt settlement is another way that debtors can resolve their debt issues. The other names for debt settlement are debt negotiation, debt arbitration, or credit settlement.
In debt settlement, debt adjustment companies play their role between debtors and creditors in reducing the debt payment which may be considered as full payment. The debt adjustment company will work with your creditors to create payment arrangements and reduce your debts. It can take months to reach agreements with the creditors. When a company collects enough funds in a debtor’s account, it contacts the creditor to settle the debts by minimizing the amount that is actually owed on the account.
Is Debt Settlement Helpful?
The debt settlement companies charge a fee for their services. The cost is usually a proportion of the amount that is being saved by debt settlement. In this case, the debtor is advised to stop sending money to his creditor and save money in his account with the debt settlement company until it reaches a lump-sum payment. Until an agreement is made between creditor and company, the creditor must save a minimum of one payment according to the settled amount of agreement.
The risks with debt settlements include the following:
- There is always a possibility that the creditor will not agree to the policy made by the company
- There is not any guarantee of the resolution of all your debts by the debt settlement company
- The debtor might have to give full fee payment to the debt settlement company even if they have not settled all your debts but settled a fraction of your total debt amount
- You will have to pay extra tax if the forgiven amount of debt exceeds $600
Therefore, debt settlement does not prove helpful in all debt cases.
What Options are Available Besides Debt Settlement?
You have another option to settle down your debts problems that is bankruptcy. Bankruptcy can be a good option when a debtor is going through medical problems or has lost a job. It may also be a good option if the debtor cannot negotiate with a creditor, cannot save enough money, or even when the creditor aims to file legal actions against the debtor.
Significant Differences Between Bankruptcy and Debt Settlement
Clearly both bankruptcy and debt settlement have pros and cons, but the considerable differences between the two that you should take into consideration include the following:
- Bankruptcy saves debtors from the payment of taxes on the reduced amount of more than $600
- The debtor does not need to worry about making payments to the debt settlement company when filing bankruptcy
- The debt settlement company will not stop wage garnishments, lawsuits, and collection calls, but bankruptcy will solve these issues
- Debtors recover more rapidly through bankruptcy than debt settlement
Contact an Experienced Bankruptcy Attorney Today
If you are considering bankruptcy or debt settlement, contact the attorneys at Tyler Moore Law today to schedule a consultation. We will discuss your situation with you and help you determine what your best possible option may be.