Why Debt Settlement Is Better Than Debt Collection

Why Debt Settlement Is Better Than Debt Collection

After October 11, 2025, a lot more people will start to consider debt settlement as a viable bankruptcy alternative.

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The new bankruptcy law takes effect on that day, which may come as a rude surprise to many customers looking for a fresh start in bankruptcy court.

In the past, Chapter 7 status, in which all unsecured obligations are completely discharged, was given to 7 out of 10 people who filed for personal bankruptcy. With the new regulations, that will alter.

You won't be eligible for Chapter 7 if your income is higher than the state median or if you can pay at least $100 toward your obligations each month.

Instead, you'll enter Chapter 13, where you'll have to repay some of your debt.

spanning three to five years.

Things worsen.

The approved IRS schedules, not your actual documented expenses, will be used by the court to determine your authorized living expenses.

Therefore, even if you don't think you can afford to pay $100 or more a month, the judge will likely think otherwise.

Instead of a new beginning, many people will be forced to accept a drastically reduced level of life thanks to a draconian 5-year plan that is ordered by the court. At that point, debt settlement begins to seem quite alluring.

Yes, I am aware that debt settlement has detractors.

I've voiced my own criticisms of the industry.

The detractors, however, don't seem to realize that this strategy is for those who would otherwise go bankrupt! 

Let's look at the three primary criticisms of debt settlement to identify where the critics go astray.

Your credit score will suffer if you settle debt.

Wow. Major bargain! Act as if it's been two years.

Which would you choose: being completely debt-free or having an A+ credit score? Please choose one; you cannot have both.

Credit scores suffer as a result of any debt relief solutions.

Only those who genuinely struggle to pay their bills ought to enroll in one of these programs.

However, worrying about your credit when you are drowning in debt is useless. That would be like to fussing about your yard after your house has burned down. The may require you to pay taxes on the

 canceled portion of the debt."

A portion of the debt was cancelled.

The frequency with which this trite complaint is recycled in article after article never ceases to amaze me.

Yes, it is possible that you will have to pay taxes on the remaining balance of a forgiven debt, although this is unlikely.

Because the IRS permits insolvent taxpayers to exclude cancelled debts, this is the case.

Therefore, you generally won't have to pay taxes on your settlements unless you have a positive net worth.

What good would it do even if you did? You would be paying taxes as you paid off a lot of your bills! And this is a difficulty?

"Collection efforts will continue, and you could face legal action."

Yes, if you get behind on your payments, your creditors will undoubtedly keep trying to get what they're owed, and

One or more of those creditors might file a civil lawsuit against you.

But once more, this critique is wholly unwarranted.

Being in debt difficulty already results in collection efforts.

Debt settlement at least enables the customer to use the collecting procedure to get rid of debt by reaching negotiated agreements.

Even lawsuits need not be a source of worry because they are frequently resolved outside of court.

There should never be a situation where a lawsuit is allowed to advance to the point of bank levy, property lien, or wage garnishment.

And in that scenario, the debtor ought to consult a bankruptcy lawyer nevertheless.

Let's examine some of the benefits of debt settlement, in contrast.

1. You

 can save $1,000s versus any other method of debt elimination (except for Chapter 7 bankruptcy, which will become difficult to accomplish after the new law takes effect).

2. You can get out of debt in 2-3 years, and much faster if there is some available home equity to work with.

This is a lot better than 5 years in the financial boot camp of Chapter 13 bankruptcy, or 5-9 years in a credit counseling program.

3. You keep control over the process more than with any other approach.

4. You maintain personal privacy.

With bankruptcy, your case file becomes a matter of public record, easily located via Internet search by future employers, landlords, or creditors. 

5. You retain your dignity while working through your financial problems.

Bankruptcy still feels like failure to a lot of people.

Debt settlement represents an honest and ethical alternative to that extreme solution.

6. You can adjust your monthly funding into the settlement program up or down depending on real-world conditions in your financial life.

If your income fluctuates from one month to the next, or you get hit with an unexpected expense, it won't torpedo the whole program.

The built-in flexibility of debt settlement gives it a huge advantage over other options, all of which require a fixed monthly payment.

Once you're made the determination that debt settlement makes sense for your situation, you'll need to decide whether to go it alone or seek professional assistance.

For people who aren't easily intimidated, there's no question that the do-it-yourself approach is the way to go.

For others who can't handle the least bit of pressure or just want to focus their time and energy elsewhere, hiring a professional settlement company may be the correct choice. 

If you do decide to take the do-it-yourself approach, follow these tips:

* Use a privacy manager on your telephone service to screen creditor calls so that you only speak to creditors when you're ready.

* Make sure you have a solid game plan for building up money to settle with, and set the funds aside in a separate bank account. 

* Do not send settlement funds until you have the deal in writing. No exceptions!