Settling Debts

: Chris Lee Law Firm

  Filed under: Chapter 13

debt settlementMany people dealing with large debt burdens are attracted to the offer to settle their debts for “pennies on the dollar”. While debt settlement companies may be able to provide debt relief in this form, it often comes with some additional consequences that have yet to be considered.

Chapter 13 Bankruptcy

Many people are fearful of the bankruptcy process, but this is mostly due to misinformation or lack of understanding the process. Filing for bankruptcy can be a better option for many people who have been unable to negotiate their debts directly, have assets at risk of liquidation or are looking for a solid way to settle their debts. Chapter 13 bankruptcy is similar to debt settlement offered by a third party company, but with several advantages.

First, bankruptcy grants immediate relief from debt collection efforts. Although a debt settlement company may be able to negotiate debts for less than what is owed, they cannot provide the type of legal protection from creditors that a bankruptcy can provide.

Second, debt settlement companies cannot guarantee that a deal will be reached with creditors. While they promise to secure a lowered debt liability, there are many cases in which an agreement cannot be reached and the debtor is left to pursue bankruptcy anyway.

Last, the type of debt settlement reached by most third party companies may leave the debtor with a tax liability for the amount of debt that was reduced by the creditor. The debtor could walk away from the negotiation with the requirement of reporting their reduced debt as income and possibly owing the IRS money on this amount of debt reduction.


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