Debt Settlement vs. Chapter 13 Bankruptcy



Debt Settlement through creditor negotiation is clearly the best alternative to a Chapter 13 bankruptcy. In many respects, debt settlement (where a percentage of the debt is paid and the balance forgiven by the creditor) is an informal version of the Chapter 13 process. The key difference, which is huge, is that debt settlement is a private matter under the control of the consumer, whereas a Chapter 13 bankruptcy is a matter of public record, and wholly under the control of the courts.


For your convenience, the chart shown below compares Debt Settlement vs. Chapter 13 bankruptcy against a variety of important factors.



Debt Settlement Compared to Chapter 13 Bankruptcy


Chapter 13

Debt Settlement

Average percentage of debt to be repaid

30% to 50%

30% to 50%

Duration of program

3-5 years, with 5 being the new standard.

2-3 years, depending on monthly budget and other available financial resources.

Control of program

The Court has full control.

The consumer keeps control.


Becomes public record.

Privacy retained; not public record.

Duration of negative impact to credit

Bankruptcy remains on credit report for 10 years. May affect future job or loan applications beyond that period.

Negative marks remain on credit report for up to 7 years, but most consumers recover credit-worthiness within 1-2 years after completing program.

Creditor lawsuits Blocked by bankruptcy filing. Creditors may still take legal action to collect, but lawsuits can normally be avoided through negotiation process.
Flexibility None; must pay fixed monthly amount determined by Court. Very flexible; consumer's budget dictates pace at which settlement funds are built up.
Living expenses Allowable living expenses determined by the court based on IRS schedules. Living expenses not disclosed to creditors except in rare instances to close a negotiation.

Costs (fees, etc.) for professional assistance

$1,200 to $1,800 average, normally paid up front; will probably increase under the new law.

$3,000 to $5,000 average; may be much higher for large debt amounts.

Costs (fees, etc) for do-it-yourself approach

Not recommended

$397 for Do-It-Yourself Training & Coaching Program



From the above, it is obvious that Debt Settlement is a highly attractive alternative to Chapter 13 bankruptcy. The next question, however, is whether to hire a third-party debt settlement company or to negotiate with your creditors on your own. There are some important reasons why the do-it-yourself approach is superior to paying $1,000s to a third-party debt company. An excellent do-it-yourself training & coaching program is available for a small fraction of what the settlement companies charge. CLICK HERE to go to the website and learn more.

If you would like more information on how debt settlement works, CLICK HERE to download a FREE 32-page report, "How to Eliminate Your Debts Quickly and Safely Without Filing Bankruptcy."




Copyright 2005. Manchester Publishing Company. All rights reserved.

Notice: This site is intended to provide general information only. The author is not an attorney and does not provide legal advice. The information provided herein is not intended to provide definite or specific advice with respect to bankruptcy. The consumer should seek the services of a licensed professional to determine filing eligibility for bankruptcy.