Bankruptcy or Debt Settlement - Which One is Better?

Debt is simply a part of life for everyone, but in today's economy too much can make life very challenging. With loss of jobs and lower incomes, many people are looking for ways to elevate their debt and become more financially stable. Two solutions that many consumers are turning to are bankruptcy and debt settlement. Many people with financial hardships find that one of these two methods is the only solution to reasonable debt management.

Debt settlement helps a consumer improve his financial situation. With this type of solution, it is possible to be debt free within two or three years. Bankruptcy is typically described as a 'reorganization' or 'liquidation' and this solution includes a consumer declaring himself unable to pay his outstanding debts. Debt settlement is a plan to negotiate the debt that is owed so the amount that is paid is less than originally owed, but is accepted as full payment for the entire amount of the debt. Bankruptcy allows either a work out plan to be negotiated or most bills to be completely eliminated or discharged.

Debt settlement and bankruptcy are very similar in that they both provide debt relief to someone who is struggling financially but they are very different in principle. With a debt settlement program, a representative will negotiate with a consumer's creditors to lower a balance, reduce interest rates, reduce the monthly payment, or even all of these combined. Bankruptcy is a process based in court that gives relief to the burden of debts. Once the bankruptcy is complete, personal liability is released from most debts.

With both bankruptcy and settlement, harassing phone calls from creditors and collection agencies will end. Bankruptcy allows a consumer to rebuild credit as most problems begin to come off a credit report within just a few years. After a debt settlement, it may take a few months or possibly a few years to be approved again for credit.