Is debt resolution different than bankruptcy? 24 Answers as of September 13, 2011

Yes, debt resolution is a non-judicial arrangement between a debtor and each creditor reached through negotiation with each creditor separately. The goal is to settle claims for less than the contract amount owed, and to pay off set amounts in periodic installments over the years. It is honorable to want to pay back your debts, but the debtor gains very little advantage with this arrangement. A bankruptcy is a judicial proceeding wherein all collection of debts is stopped and creditors cannot, by law, continue to collect on them. In most consumer bankruptcies the debtor keeps necessities such as a home and car and loses nothing. Your credit rating will be improved sooner after a bankruptcy that after a workout under debt resolution.

Non-bankruptcy alternatives do not stay on your credit report. Bankruptcy stays on your credit report for ten years.

Yes, bankruptcy has some teeth. There is no "negotiating". Once it is done, it is done, the creditor has no say in it. I have filed many bankruptcies for people who were in debt settlement plans, many of them with judgements against them.

Chapter 7 is a discharg eof debts, Chapter 13 is a payment plan that may reduce unsecured debt and interest, and or repay a delinquent mortgage or car note. Debt resolution is an attempt to work out matters without bankruptcy. Creditor participation is mandatory in bankruptcy, voluntary in debt resolution.

Debt resolution is different in that you are negotiatiing with creditors to accept lower than the amount owed in satisfaction of the debt. This is an option to bankruptcy. Chapter 7 bankruptcy is a straight discharge of unsecured debts and you decide how to handle the secured debts.

Debt resolution or debt negotiation is where you pay each creditor whatever lowest amount you can get creditors to accept in lump sum payments. Chapter 7 bankruptcy is where you don't pay anything. Chapter 13 bankruptcy is where you don't qualify for Chapter 7 because income is too high or have too much property you cannot keep if you file a Chapter 7 case. In Chapter 13 you pay in a 3 to 5 year plan what you can afford only according to certain complex calculations, plus certain debts that are "priority" such as recent taxes and spouse/child support, or secured debts (unless the trustee allows direct payment as in case of the house mortgage or car payment). Debt resolution or debt negotiation should be only for those who cannot benefit from bankruptcy relief and have available cash to settle the debts one by one before the lawsuits arrive. Debt resolution or negotiation companies are generally a rip off because hidden fees are excessive and the programs fail since the creditors cannot wait and sue in court or the amounts proposed to be paid are rejected by the creditors. Most importantly, people are over optimistic about affording the payments to accumulate funds in order to settle the many accounts and they give up and lose it all and then file bankruptcy. The government finally imposed some controls on debt negotiation companies late last year and many have ironically gone bankrupt! You have to also pay taxes on the reduced debt amount unless the debt is eliminated in bankruptcy. There is a lot more but this is the general comparison. If you enjoy getting ripped off then debt resolution or negotiation programs by one of those companies on late night TV is guaranteed to make you happy!

Debt resolution is usually a criminal scam to take your money. (There are exceptions but you'll likely fall prey to the bad folks). Bankruptcy is a legitimate way to address debt problems.

Debt resolution is voluntary with the creditor, is either a negotiated payment of less than the full amount due, usually around 40 to 50% which must be paid immediately, or is a stretched out payment of the full amount. If the creditor does not agree, there is nothing to require them to agree. Any amount in excess of $600 which is not paid can be reported to the IRS as income and taxes may have to be paid on this amount. Bankruptcy is either a total elimination of the debt in a Chapter 7 or in Chapter 13, a payment of anywhere from a percentage of what is owed, which is the usual - or all of the amount due, depending on your income level. Debts discharged in bankruptcy are not income to you.

Yes they are. Bankruptcy will get rid of your debts legally. Debt resolution is a hope that your creditors will agree to get rid of the debts.

Debt resolution is a work out of debt by way of payment plans and negotiations and modifications.

Big difference. Bankruptcy discharge ends your debts under court order, ends creditor calls, protects you in several ways, and is completed quickly. Debt resolution takes your money, (more than lawyers charge), pays itself first while your creditors get nothing, doesn't take your calls or offers you platitudes, and you still end up in bankruptcy.

It's a negotiated settlement, either done through a third party or yourself. Unless you have some surplus income, its effectiveness is rather questionable.

Yes. Debt resolution requires a monthly payment to your creditors, usually through a servicer, in exchange for the creditors' willingness not to sue or force collection. Bankruptcy is either a wiping out of the debt completely or a court supervised repayment plan. The latter is normally used where creditors will not all agree to a payment plan outside of bankruptcy.

The two are totally different. Bankruptcy absolutely removes your liability on debt that is subject to the bankruptcy discharge. Debt resolution, unlike bankruptcy, allows creditors to choose to participate or not participate and sue you if they wish to do so. Further, bankruptcy does not result in taxes, whereas debt resolution results in you owing taxes on "debt forgiveness."