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A Debt Settlement Program or Bankruptcy?

  • By: Christopher Benson
  • Published: May 6, 2014

If you’ve talked to any of your friends and family about the possibility of filing for bankruptcy, they have probably mentioned an ad they saw or heard for debt settlement. So is debt settlement a good alternative to bankruptcy?

In limited situations, Debt Settlement might be a viable option if you have ONLY ONE debt that has gotten away from you. If you can work out a deal with that single creditor, then great. However, if you owe more than one creditor, then Debt Settlement/Consolidation is probably not a good way to regain control and put stability back in your life. Here is why:

  1. You need a complete “global” solution to all of your debt: not a band-aid or a partial fix. Over the past 27 years I have met with clients where their attempt to do a debt consolidation program has failed. The reason? Because debt consolidation programs DO NOT prevent creditors from filing lawsuits and garnishing your income. Debt consolidations are based on all of your creditors cooperating and waiting to get paid reduced sums over time. However, your creditors have no legal obligation to wait and/or cooperate. Debt consolidation programs DO NOT provide your any legal protections. If only 1 creditor refuses to accept a “settlement” and also wait over time, then that one creditor will cause the entire settlement to fall apart and fail.

On the other hand, bankruptcy provides you guaranteed Federal Protection from ALL of your creditors and and provides a complete global solution to your financial issues. Most of the time, filing bankruptcy is a faster and more stable method to resolve all of your financial issues with predictable results.

Before you make any decisions on how to handle your financial issues, meet with a bankruptcy lawyer first to find out your options. I offer a free initial consultation for bankruptcy matters.

Over the past 27 years, I have seen many people literally waste thousands of dollars and lots of valuable time in getting things resolved by “trying” to make a debt consolidation program work, just to see it ultimately fail and then wind up having to file a bankruptcy to take care of their financial situation.

2. Debt settlement doesn’t protect you from collection. In bankruptcy, you receive the protection of the automatic stay, meaning creditors can’t come after you while you are going through the bankruptcy process. If you are in immediate danger of having utilities turned off, possessions repossessed or a home foreclosed on, bankruptcy can help in ways that debt consolidation will fall short.

3. Debt settlement still affects your credit, but without the debt relief. Most debt settlement arrangements involve you ceasing to pay on your debt while paying the debt settlement company. Then, they take the money you gave them and use that lump sum to negotiate down your bill with the creditor. However, unlike bankruptcy where your credit is affected but your debt is discharged, in debt settlement you are still liable for some portion of the debt—and there’s no guarantee that the creditor will settle.

4. Debt settlement doesn’t give you a fresh start. Bankruptcy usually results in discharged debt, so if there is no way you can ever pay back your debts, debt settlement is not going to help you, because all you are doing is paying back debt. Settlements can keep you in the hole without giving you a light at the end of the tunnel.

Over the past 27 years, the Law Offices of Christopher A. Benson has helped over 2,300 of Washington clients take control of their financial situation. We can stop your garnishment and change your monthly payments for all your combined unsecured debt, and if you have had more than $600 garnished within the last 90 days, we can get all of the money back in most cases. But you have to act quickly–call (253) 815-6940 for your free consultation, or email us today. Evening and weekend appointments available.

Christopher Benson

About the Author Chris served on the Board of Directors for Habitat for Humanity
Seattle/S. King County for 10 years and served as Vice President
of the organization during part of that time. Read More