Is Debt Settlement Better Than Bankruptcy?

11 Jul Is Debt Settlement Better Than Bankruptcy?

Often consumers will consider debt settlement before thinking about bankruptcy. After all, most people genuinely want to pay their debts. Debt settlement offers the chance to do just that, and within your means.

Sounds ideal, right? Well, let’s put aside the tax implications and all of the pitfalls (some of which have been discussed here in the past). Assuming you know what you’re getting into, debt settlement may actually work for you.

Lots of caveats here, though – so don’t go crazy and sign up for a debt settlement plan right away. You need to understand that these programs are designed for people who can come up with a chunk of money and are willing to gamble that the creditors will take something as opposed to nothing.

Who would be a great debt settlement candidate? Someone who has assets or income that make it difficult to file for bankruptcy, someone who’s sitting on a decent chunk of money but just not enough to pay everyone in one fell swoop.

But buyer beware, it’s a gamble. I said it before, now I’ve said it again. As in, roll the dice and hope you don’t crap out and lose.

A recent article at the LegalHelpers blog talks about the case of a poor woman who signed up for a debt settlement plan without realizing that the creditors weren’t going to sit around and wait for her to scratch up the money. She didn’t pay, they didn’t settle, so they sued her. Ultimately, she filed a bankruptcy case and nobody won.

Don’t get me wrong, I think most of these outfits are shady at best. They don’t provide enough information to consumers regarding the cost of services or what exactly is going to happen. And I’m not coming to the defense of the company that worked with this particular woman.

The article paints the debt settlement company in a bad light, and I won’t pass judgment on that point. But whether the settlement company was culpable or not, the article hits the nail on the head when it says, “Be careful, anything other than bankruptcy is riskier and doesn’t offer any guarantee of relief from debt.”

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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