Bankruptcy is not the only option for those dealing with staggering debt. Another popular option is to negotiate with your creditors to settle your debts. While debt settlement and consumer bankruptcy have the same goal — eliminating or at least greatly reducing your debt load — the process for each are very different.
Bankruptcy is a legal process that the debtor applies for and undergoes in a specialized bankruptcy court, which oversees the process of discharging or reorganizing the debts. Debt settlement is a direct negotiation between yourself and your creditors, often with a third party representing you.
While an attorney can help you negotiate debt settlements, there are companies out there that advertise themselves as low-cost debt negotiators. In exchange for a fee, they can negotiate a settlement where you pay a percentage of what you originally owed. However, you must be able to pay in a lump sum. Also, creditors are not required to deal with debt settlement companies. They can choose to continue their debt collection tactics or sue you instead.
That is not the case with bankruptcy. Once you file for Chapter 7 or Chapter 13 bankruptcy, creditors must pause debt collection practices like calling you on the phone and sending you letters. Plus, once you qualify, creditors must work within the parameters of bankruptcy. Depending on which form of bankruptcy protection you use, you can get your debts discharged (or erased) or reorganized into manageable monthly payments until they are paid off.
Tailoring to your needs
Which method of debt relief is better for you depends on several factors, such as the size and type of your debts, your income and feelings about bankruptcy. A consultation with a bankruptcy attorney can help you make your choice.