What Is Debt Settlement?

What Is Debt Settlement?

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Read about the latest changes to debt settlement law and how they might affect your plans.

If you’ve done the reading about Chapter 7 bankruptcy and don’t think it’s right for you, know that there are still options available. Keep reading to learn more about a debt settlement.

Often referred to as debt negotiation or debt arbitration, a debt settlement typically involves an experienced professional who works with creditors on your behalf to settle your debts at a lower amount than what is owed. In some instances, creditors may be willing to forgive a certain amount of debt in exchange for a lump-sum settlement payment.

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Once a monetary amount is agreed to during the debt settlement process, the debtor will typically save up and then make the one-time payment in full. The debtor should later receive a letter from creditors stating that the debt has been fulfilled.

When Does a Debt Settlement Typically Apply?

Creditors may be willing to settle debts when:

  • past attempts to collect have been unsuccessful
  • bankruptcy is a serious consideration of the debtor
  • the debtor has been able to demonstrate severe financial hardship

But why would creditors be willing to settle a debt at a lower lump sum than what you owe?

If previous attempts to collect the debt have been made and the debtor has shown severe financial hardship, creditors may be better off to negotiate and accept a lump-sum payment rather than taking the risk of getting less money after bankruptcy.

Learn More about the Debt Settlement Process!

If you have massive unsecured debt and would rather not file for bankruptcy, speak to a professional debt negotiator as soon as possible. An experienced debt negotiator can help you look at your current financial difficulties and learn more about the debt settlement process.

The above summary is not legal advice. Laws may have changed since our last update. For the latest information on bankruptcy laws, speak to a local bankruptcy lawyer in your state.