Debt Settlement vs. Filing Bankruptcy


Debt settlement will work but it usually something you can do for yourself as opposed to paying someone else. The companies that do this for you tell you first thing is to stop paying your creditors and/or credit cards and make installment payments to them… once your CC accounts are in default, the collection entities that take over the accounts will settle for 40 to 50% on the dollar.  The debt settlement company then uses the money you are paying them to settle the accounts one at a time as funds you pay into them build up.


The problem with this method is that no creditor is required to cooperate. While you are paying the credit settlement company,  the creditors can still sue, collect, garnish etc…. You get one paid off  off and another creditor starts garnishing you and the whole thing falls apart. If your total debt is not that much and you have the ability to do it, this can  save your having a BK on your credit report for 10 years.


If you want to go this route you can really do it yourself. Go to each creditor/account and offer the 40% lump sum to start. Pay one then go to the next.  If someone sues you and gets a judgment you can stop them from garnishing you by going to your local district court (that is where they have to file a case against you) and get a “Motion to Make Installment Payments”. Clerks  at the district court are usually very helpful with filing these and it does two things: 1 It forces them to accept a reasonable monthly payment while stopping them from garnishing you; and, it makes them more amenable to taking the 40% lump sum payment.


Most people are not aware that the Debt Settlement Agency is holding their money to pay one creditor at a time and get a rude awakening when another of  the creditors get a judgement and starts garnishing. They  then very often end up having to file bankruptcy anyway,  and the money they have been paying in to the debt settlement company is gone.


The real issue in deciding what route to take is the amount of debt you have and the resources you have to pay it back.  If you can pay roughly 40 to 50% of your debt over the course of say,  15 to 24 Months?     You may want to start with some smaller accounts and offer the lump sum payment.  Then go to the next one,  and knock them off one by one.  Try and make a condition of the lump sum payment that they take all negative info off your credit report (probably not likely but may as well try). Tell them you consulted a BK attorney and they can take the lump sum or you will just have to  file BK.  Hold off other creditors  (if necessary) by going to your local district court if they come after you and fill out the “monthly  installment payment”  motion.  Judges will usually accept any reasonable monthly offer to stop a creditor from garnishment or other direct collection from you.


Or … you can file  bankruptcy, discharge all your debt and get a fresh start without all the hassle.  While it is on your record for 10 years, you have immediate relief and the impact really wears off after a year or so. Immediately your income to debt ratio is much  better, and depending on who much debt your eliminating this may far outweigh  the BK on your credit report.


I usually put the over / under at 10,000 for people that contact me. Some people with under 10,000 have no choice and have to file anyway. But the more over 10,000 you are  eliminating by filing bankruptcy the easier the decision to file bankruptcy is to make.