What exactly is the difference between debt settlement and bankruptcy?

Answer 1

The simple answer is that debt settlement is an out-of-court voluntary arrangement between a debtor and creditors. Bankruptcy is a legal proceeding in federal court that can result in an order by a judge discharging liability.

A successful bankruptcy filing results in a court order giving the debtor a "discharge" of debt. Court orders can be enforced against creditors. Generally, there are two types of bankruptcies for consumers, Chapter 7 and Chapter 13. Chapter 7 eliminates debt. Chapter 13 restructures debt into a repayment plan based on what the debtor can afford to pay, not necessarily on what is owed to the creditors. Bankruptcy laws are powerful because they protect the debtor from collection proceedings even when a creditor isn't interested in making a deal.

A debt settlement is an out-of-court voluntary negotiation process between the debtor and creditors. A debt settlement company, generally, is an agent for the debtor that works out some sort of settlement or repayment plan that is acceptable to one or all of the debtor's creditors. Debt settlements do not offer the same protections and level of relief as a bankruptcy. There is no court order that can be enforced. There might be a contract that could be enforced, but not always and the contract usually is full of ways for a creditor to back out of the deal. For a debt settlement to work, creditors must agree to accept the settlement or proposed payment terms.

A debt settlement is reported to a credit bureau, as is bankruptcy. Bankruptcy, however, can remain on the report for up to 10 years, whereas debt negotiations or settlements are only reported for 7 years. However, both options adversely impact credit scores. In fact, if you are in the unfortunate position of having to consider one of these options, your credit score is probably on its way down anyway.

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Answer 2

A settlement is when you or a third party work with the creditor/collector and reducing the amount you owe or interest rate. With a settlement, usually a creditor will accept the least amount of money as an upfront payment. They can usually make arrangements to pay over time, but you would pay more than the settlement but less than the amount actually owed. The downside to making a settlement is the creditor may continue to report it as a negative account on your credit report and you are only settling one account. Settlements are good if you are struggling with only one account.

Bankruptcy is where you try to discharge ALL of your unsecured debts. The downside of bankruptcy is that it will stay on your credit report for 10 years, but you will get a fresh start.

Answer 3

Bankruptcy is a court action and can be either voluntary (i.e. filed by the debtor himself) or involuntary (i.e. instituted by the creditors). The action is public recorded and made part of the debtor's credit history for at least 7 years. This can adversely affect the debtors ability to borrow money in the future. Basically, the debtor is saying that he is completely incapable of paying his debts and allows his creditors to go for whatever assets he might have to cover his debts.

A debt settlement is a private arrangement btw the debtor and creditor where the debtor agrees to a prescribed payment schedule or amount to satisfy his debts. The arrangement in effect prevents a derogatory notification on your credit report and can preserve the debtors score unless of cpourse the debtor defaults on the payment scheme in whch case the creditor reserves the right to file a judgement lien agst the debtor and/or move for bankruptcy.

Answer 4

Debt settlement is when you pay your debts in payment arrangements and they usually lower the interest rates. Bankruptcy is when you pay an attorney to file and all your debts are null and void but your credit history is trashed.

Answer 5

Debt settlement indicates that you have the capacity to pay off your debts. Bankruptcy is saying you don't have money left to pay them.

Answer 6

settelment you pay something to the companies and bankrupsy you just pay money to lawyers