What is debt settlement? 3 Answers as of August 04, 2010

I have too much credit card debt and have less income because my job has been hit by the economy. Is debt settlement a good service? Is it better than bankruptcy?

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Kevin Michael Muldoon
Kevin Michael Muldoon | Kevin Muldoon
I recommend bankruptcy. If you're eligible for a Chapter 7 bankruptcy, it will dissolve your credit card debt completely and you won't need a payment plan.
Answer Applies to: California
Replied: 8/4/2010
Diefer Law Group, P.C.
Diefer Law Group, P.C. | Abel Fernandez
It can be a good service but in my experience I see a lot of programs that do not work.
Answer Applies to: California
Replied: 8/4/2010
David Nelson
David Nelson | David Nelson
Debt Settlement is only better than Bankruptcy if it works out better for you.

Debt Settlement is typically when the person settling the debt makes a specific offer to a specific creditor to "settle" the debt for less than the full balance owed. For instance if I owed you $5000 and offered to settle it for a one time payment of 25%. If you decided that to take it was better than to wait for a bunch of little payments and probably get a bankruptcy notice, you might say yes. If you do say yes, then I'd better have $1250 readily available to mail you a certified check within about a week or so, or sometimes less time than that.

Often you will be able to settle some creditors for as low as 15% or 20% and others closer to 35% or 50%. You'd probably average at about a third.

So, if you have about a 3rd of the total on all of your debts saved and set aside or if you can get it, then that's probably a lot better than a bankruptcy as long as your primary income is not in jeopardy. If your job has cut your hours, your pay, your commissions, your sales territory, your overtime, or in the more extreme situation, if they're paying you like you're on salary when you're hourly and keeping the overtime pay they should be paying you, then your company is about to file a bankruptcy too.

If you're in any of those situations, you probably do qualify for a straight bankruptcy, which is also called a chapter 7 bankruptcy or a liquidation bankruptcy. If you do qualify for it, then in California, you probably qualify to keep your life savings even if you do file a bankruptcy. So, why settle your debts for 33% when you bankrupt out of them and pay them 0%? Especially if it turns out you get to keep whatever savings you might still have.

There's no way to know if you could keep your savings without a FREE
consultation, so call me to set one up.
Answer Applies to: California
Replied: 8/4/2010
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