With many Americans struggling to repay debt, advertisements for debt settlement companies are on the rise. Many debt settlement companies claim that they can help debtors pay only a fraction of their debt and walk away debt-free. “Pay only pennies on the dollar!,” they say. Many debtors are under the false impression that debt settlement is like bankruptcy.The truth is that debt settlement and bankruptcy are completely different. Although a debtor can often settle debt with a creditor, it’s not always as easy or “profitable” as some debt settlement companies claim. When using debt settlement to pay off a debt, the debtor can only negotiate one debt at a time.
No creditor is required to settle a debt for less than what’s owed and working with a debt settlement company doesn’t always increase your chances of reaching an agreement. On the other hand, filing bankruptcy stops all creditor collection activities and can discharge all dischargeable debts that the debtor owes.
When a debtor files bankruptcy the creditor cannot refuse to cooperate with the bankruptcy court. If the creditor does not agree with a bankruptcy discharge he/she must file a motion with the bankruptcy court.
A debtor who files bankruptcy has many rights that a debt using debt settlement does not have:
When using debt settlement, creditors are not required to cooperate with the debtor.
When filing bankruptcy, the creditor is required by law to respect a bankruptcy discharge or other orders given by the bankruptcy court.
When using debt settlement, debtors must negotiate with each creditor individually.
When filing bankruptcy, debtors can deal with all of their debt in one bankruptcy case.
When using debt settlement, if not done correctly, the debtor risks a creditor reneging on a debt settlement agreement.
When a debtor files bankruptcy creditors are bound by the law and cannot renege on agreements or attempt to collect after a discharge without threat of being punished by the bankruptcy court.
To find out more about your rights during bankruptcy, contact a Dallas-Fort Worth bankruptcy attorney.