How does debt negotiation compare to bankruptcy?
Debt settlement is a negotiation between a debtor and a creditor. In most cases, the negotiations are done between a debtor’s attorney and credit card companies. How individual debtors enter into these negotiations is usually through a debt settlement company that markets to individuals that are usually at their last straw. Many of the marketing for these companies is done through direct mail, television, and radio.
Usually, the debtor contacts the debt settlement company who sells their package to the debtor. The debtors may be counseled to stop making all payments on their debts to force the creditors to make a deal with the attorney that will be assigned to the case. Next, the attorney settles the case for a fraction of the debt. A new plan is created wherein the debtor pays a smaller amount each month. The debt settlement company receives a portion of the payments, while the attorney receives another portion of the debtor’s monthly payment.
In bankruptcy, these same debts may be completely eliminated.
The drawback is that in both cases, an individual’s credit report will be adversely affected. For bankruptcy, the filing may stay on a credit report for up to ten (10) years. However, in many cases, following bankruptcy an individual can create financial stability and end up with a much stronger credit score than even before the bankruptcy because of a lack of debt and a legal inability to file for another bankruptcy until at least eight (8) years after the initial filing.
A. With Debt Settlement (Negotiation), your accounts are settled for less and paid with a zero balance. In most cases, a bankruptcy is a consumer’s last resort and has a devastating effect on your credit rating. Many of our clients look to Debt Settlement as a last resort prior to filing bankruptcy or prior to receiving any credit counseling.
