Most debtors file for bankruptcy as a last ditch effort to dig themselves out of the hole when their debt troubles are just too much to handle. But often their last stop right before bankruptcy is debt settlement. There are a lot of companies out there that offer debtors the opportunity to settle their debts with creditors for "pennies on the dollar." Sound too good to be true? Well, many debtors coming to bankruptcy court after going through "debt settlement" have found that at least in their case, it is too good to be true. What a lot of debt settlement companies fail to tell their customers is that debt settlement is risky and not guaranteed. The debt settlement companies require upfront fees; but they can't guarantee the debtor that the creditor will accept the debt settlement offer. Many debtors go through debt settlement and still end up having to file bankruptcy because their creditors would not accept the debt settlement offer.
The other problem with debt settlement is that many debtors, actually most debtors are not good candidates for debt settlement. The best candidates for debt settlement are people who have so much income and/or assets that bankruptcy is not a viable or easy option. These people can afford to pay debt settlement fees and can afford to pay for the taxes owed on the forgiven debt. Yes, debt settlement leaves a tax bill.
Any debtor considering debt settlement should speak with a bankruptcy attorney first to find out if bankruptcy would be a better option.