Debt Settlement vs Bankruptcy

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Understanding Debt Relief
Excessive debt-to-income ratio Experiencing financial hardship In need of a fresh start
Debt Settlement Explained
Debt settlement may potentially have a negative impact on your credit score Your creditors have no obligation to reach a debt settlement agreement with you Any loan forgiveness you receive as part of a debt settlement agreement may be subject to income taxes With debt settlement, you don’t declare bankruptcy, so you may not incur court fees Debt settlement is not a public process like bankruptcy With debt settlement, you may end up paying only a fraction of the amount you originally owed The debt settlement repayment process can be quicker than it is with Chapter 13 bankruptcy, where repayment plans extend from three to five years
Bankruptcy Overview
You may need to hire an attorney when filing for bankruptcy, which can be costly Under Chapter 7 bankruptcy, you must list joint checking accounts as assets Filing for bankruptcy may cause your credit score to plunge When you file for bankruptcy, it can immediately prevent creditors from sending you to collections When you file for bankruptcy, a bankruptcy trustee, who is an officer of the Department of Justice, is appointed and represents your estate in the bankruptcy proceeding When you file for bankruptcy, your assets may be protected from your creditors to some degree, depending on the laws of your state You won’t owe any taxes on debts that are discharged by bankruptcy
Comparing Debt Settlement and Bankruptcy
Debt Relief vs Bankruptcies
Debt consolidation loans Loan modification Voluntary repossession
Making an Informed Decision
The Takeaway
Frequently Asked Questions
Photo credit: iStock/Andrii Yalanskyi
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About the Author
Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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