Debt Settlement vs. Bankruptcy

There’s some BIG differences between bankruptcy and debt settlement. Learn about those differences here and make an informed decision.

A growing number of adults become credit card holders every year. Along with that distinction comes a growing number of people racking up giant credit card bills that they can’t pay off.

This is obviously not good for consumers but credit card companies are reaping a HUGE profit as a result.

The Big Debt Burden

In 2016, credit card companies reported a whopping $90.1 billion in interest charged to consumers. Another $55.2 billion was earned from fees charged to consumers. Add those together and you can see why they want you to make only minimum payments as well as be as little as a day late.

All of this puts a financial burden on consumers and as a result, many forms of debt management are on the upswing.

Of the various types of debt management services available, debt settlement and bankruptcy are the most used overall. Each carries a consequence that needs to be researched before you decide what way to go. Here is a simple guide.


There are two types of bankruptcy open to you:

  • Chapter 7 – Liquidation
  • Chapter 13 – Reorganization

A Chapter 7 bankruptcy basically wipes out all your qualified debt and you start fresh all over again. This may sound rosy but it has long lasting negative effects on your credit score. Typically the black mark exists for at least 7 years and as long as 10 years. This can affect your ability to get a loan, a job or even a place to live since most rental owners ask for a credit report nowadays.

A Chapter 13 bankruptcy is a little different. This is a reorganization of your existing liability. The debt is set up on a repayment plan that lasts a definite term, usually 3 to 5 years. After that time, any unresolved debt is forgiven and wiped out.

Both types of bankruptcy have a tremendous negative effect on your credit score and can hinder efforts to buy a car, a home or even get insurance in some cases.

Debt Settlement

Debt settlement is a much better option if you want to keep your credit rating as intact as possible. This is a simple plan by which you negotiate with your creditors (or hire an reliable debt settlement company to do it for you) to pay back a lesser amount than you actually owe. This is can be anywhere from 20-80% of the total debt.

Typically, payments are set up and the debt is erased over approximately 2 to 3 years. However, some debt settlement companies can get better and faster settlements for you if you can pay the settlement amount in a lump sum. This is one of the benefits of hiring a debt settlement company. The difference is that debt settlement shows up on your credit report as “Settled” or “Paid in Full for Less than Full Balance”.

It is true that once you get to the point if needing a debt settlement program, your credit score is already affected by the delinquencies backing up. Using a debt settlement arrangement can help you salvage your rating while you get debt free.

Your Bankruptcy will be Public Record

Bankruptcy, either Chapter 7 or Chapter 13, should only be used as a last resort or when you have no other choice. The effect on your credit is devastating and lasts a LONG, LONG time. Also, bankruptcy is a matter of PUBLIC RECORD and the fact that you declared bankruptcy is out there for all to see.

Debt Settlement, on the other hand, keeps your privacy intact and allows you credit score to go up much quicker.


  1. great article….

  2. Hello Rob, between the two, it depends on your purpose. Both can be very useful. Debt settlement less complicated and will provide positive feedback for your credit report which of course an advantage if you’re planning for a mortgage or any type of financial loan in the future. Unlike the other one. Therefore, choosing the less complications in the future is helpful.

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