Is debt settlement a good alternative to bankruptcy?
Despite its many benefits, bankruptcy, unfortunately, comes with a negative connotation, which may make you hesitant to file. You want to try to protect your reputation with both loved ones and future creditors. As you have explored other options, one you may have looked at is debt settlement.
Debt settlement services are very alluring because they promise to eliminate most of your debt, so you pay pennies on the dollar. They say they will talk to creditors and take care of everything for just a simple fee. Can you trust these services if you want to avoid bankruptcy?
The risk is high
The bad news is that in most cases, these promises are too good to be true. While there certainly are reputable debt settlement companies, most take advantage of your situation to put money in their pockets. You are more likely to go further into debt than to get out of it. Watch out for companies that do any of the following:
- Ask you to stop paying and communicating with your creditors
- Require you to open a new bank account to put money in
- Charge you fees before delivering any services
- Promise a specific amount of reduction in debt
Even legitimate companies may only be able to do so much. Creditors may not be willing to work with them and do not have to agree to any negotiations. Your credit will take a bigger hit, and you may even find yourself facing a lawsuit.
Does this mean your only choice is to file for bankruptcy? Not necessarily. There may be other options that could work for you, such as credit counseling or debt consolidation. However, it is also important to remember that bankruptcy is not a bad route. It stops creditor harassment, protects certain assets, eliminates most debts and puts you back on the road to financial security.