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Bankruptcy Versus Debt Settlement: A Basic Guide

If you are in debt, you are most certainly not alone. Virtually everyone has experienced debt at some point. While debt is often associated with potential foreclosures, disconnections, repos, and more serious complications, the truth is that debt simply means you owe someone money. A bill is a debt until you pay it off.

Bankruptcy Versus Debt Settlement

With that definition in mind, I will repeat: virtually every adult has experienced debt, businesses have debt, rich folks have debt- even our country has debt. The difference in having debt and being in debt the way we imagine debt is how much we have and our ability to pay it off.

Sadly, many of us are under a mountain of debt that we cannot afford, and we often seek relief- any relief- just to breathe again. While that sometimes leads us to work hard and be diligent about paying the debt off, we quite often make decisions that put us in worse trouble than we were in.

When people think of getting rid of debt, there are usually two ways that come to mind: bankruptcy and debt settlement. Let’s talk about these two big moves.

The Down Low on Bankruptcy

Many people- usually those who have never been through it- talk about bankruptcy as if it is a magical way to make debt disappear. Once upon a time, that was kind of true. For a while now, though, Chapter 13 is what individuals have to file, and it is not a disappearing act for your debts.

In truth, it is simply a debt settlement plan that goes through court. The person in charge of your case gives you a payment to make each payday, and they send it out to creditors. I have filed bankruptcy in the past and learned four important facts:

  • The amount I had to pay out every month was nearly the same amount as my rent, which I could not afford to pay.
  • I really was not in control of my finances, like at all. The paperwork I had to sign stated that any extra money I got outside regular income had to go toward my bankruptcy. If I got a raise, my payment would increase. There were other parts to it, but the bottom line is that until I paid off that bankruptcy amount, I did not have a chance of improving my family’s lives, like moving to a better neighborhood.
  • It screwed my credit up worse than it was before and it stays there for years.
  • The majority of my debt did not qualify for the plan.

Understanding Debt Settlement

In my opinion, debt settlement is much better when it is done correctly. By that, I mean either finding a debt settlement service that will not charge you a fortune or doing it yourself, the latter of which I favor the most.

Hiring a company to do it for you means letting someone else make your debt repayment plan, you send them money every month, and then they send it to creditors. The process is similar to bankruptcy in that someone else does it, but different because debt settlement companies are not government-owned or operated. They do not monitor your income, and they cannot tell you that you cannot make financial moves. You pay the agreed-upon amount and that is it.

Doing it yourself means you are in complete control. You talk to the creditors to come up with a plan and you pay the money each month. You also get to choose which debts to work on first, and you save money. If this sounds like the route you want to go, check out Debtry for more information on debt.

Another Option: Debt Consolidation

Debt consolidation, or debt financing, may just be the best option if you can make it happen. This means you take a personal installment loan out that is enough to cover your debt- or as much of it as you can. You pay the debt with the loan, and then repay the loan over time. This gets you out of debt quickly.

Understand Debt Management

Whether you are looking to get out of debt or just be better with it, you need a debt management plan. It is important to note that debt can hurt or help you, depending on how you handle it. For an in-depth look at debt and how to manage it, read The Only Debt Management Plan You’ll Ever Need.


Debt does not have to be as difficult to manage and get out of as most people think. I’m not saying that it’s easy- it’s just not as hard as it seems. The first step is to educate yourself, and you can do that by visiting While doing so, take a look into tax management, which can help you stay out of debt to the government and save yourself money at tax time.

John Paul
John Paul
John is a full-time blogger and loves to write on gadgets, search engine trends, web designing & development, social media, new technologies, and entrepreneurship. You may connect with him on Facebook, Twittter and LinkedIn.


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