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Debt Settlement vs. Bankruptcy: What's the Difference?

Posted By Allmand Law Firm, PLLC || 14-Nov-2016

If you are struggling with overwhelming debts, debt settlement and bankruptcy are two options that can help you regain good financial health. While many people are familiar with the word “bankruptcy,” debt settlement is less well known, and the differences between both options are unclear to many. For the benefit of our clients, this blog will serve to distinguish between these two options so that you can make a well-informed decision about your particular situation.

What is Debt Settlement?

Debt settlement involves working an attorney or debt settlement company in order to resolve a debt obligation. This involves negotiating discounts with creditors after the debtor has defaulted. Unsecured consumer debt, like credit card debt or medical bills, can be negotiated through a debt settlement program. Most often, student loan debt, government-backed loans, and taxes are ineligible for settlement. Debtors who opt for dent settlement will need to have access to a large sum of money to be able to make the settlement payment within a relatively short period of time.

Debt settlement provides:

  • Asset protection at all costs
  • A quick resolution
  • Creditor acceptance of payments

How Does Bankruptcy Differ from Debt Settlement?

The two most common forms of consumer bankruptcy include Chapter 7 and Chapter 13, which allow consumers to discharge most of their debt OR reorganize their debt into a repayment plan to pay off a portion of their debts, respectively. Debts may be either secured or unsecured, although student loans, tax debts, and some other types of secured debts cannot be discharged through bankruptcy.

Bankruptcy is usually the better solution for most people for the following reasons:

  • Bankruptcy can offer the filer a clean start with the opportunity to rebuild credit.
  • Debt settlement can be messy and stressful. Unlike bankruptcy, people on debt settlement plans ruin their credit every time they are late on a payment.
  • Debt settlement requires some form of payment, even if it is negotiated. Bankruptcy filers are cleared of all debt.
  • Debt settlements usually come with a huge fee with the new monthly payment amount.
  • Bankruptcy provides legal protection in the form of an automatic stay, which prevents creditors from garnishing your wages, filing lawsuits against you, calling you, or harassing you in any way while your case is in progress.

Neither decision should be made lightly, however, which is why it is important to consult with a Dallas/Fort Worth bankruptcy attorney at Allmand Law Firm, PLLC about which debt solution may be best for you. An attorney at our firm is prepared to investigate the particulars of your case and guide you through a course of action that is right for your situation. We offer free consultations to prospective clients, so you have nothing to lose in giving us a call.

Contact Allmand Law Firm, PLLC today at (214) 238-9608.

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