Before comparing bankruptcy and debt settlement programs, one needs to know and understand whether either offers the best solution. Every situation is different, hence the reason why one needs to do their due diligence before opting for either alternative. One may tend to choose bankruptcy as the easier option, not knowing that it comes with some dire repercussions.

Debt Settlement

It can be termed as the renegotiating or settling in some way the terms and conditions of a person’s debt to a debt collector or creditor. It can be risky if it isn’t scrutinized properly. In simpler terms, it means that the creditor has agreed to receive or accept less than the actual amount that was owed as the full payment.

Pros of Debt Settlement Programs

It can work in one’s favour in case a person is having a difficult time in trying to keep up with monthly payments. One of the major advantages of debt settlement, with the help of debt settlement companies, is the fact that one may end up paying less than what he or she is owed by the lender. Courtesy of settlers, the outstanding amount can be lowered to as low as half of the initial amount owed.

It helps with the avoidance of one having to declare that they are bankrupt.

It is a great alternative if your debts are unsecured i.e. credit card debts, personal loans, business loans to name a few.

Cons of Debt Settlement Programs

It leaves a major dent on one’s credit report which eventually lowers the credit score

You will definitely have to pay tax on the forgiven debt.

It is a very big gamble since not all creditors might be willing to settle. If all one fails to make a monthly payment at any one time, they will be in a much bigger problem with the creditors.

The primary con is the fact that you must have the cash in hand for you to be able to pay your settlements.


In business terms, it can be described as a chance to begin afresh by forgiving past debts that cannot be paid in exchange giving the creditors a chance to obtain some equal measure of repayment based on the individual’s or business’s assets that are available for liquidation.

Categories of Bankruptcies

Chapter 7 bankruptcy - Businesses or people with few or no assets fall under this category. Chapter 7 allows the liquidation of known assets. Family heirlooms, stocks or bonds get to be liquidated so as to clear outstanding, unsecured debts. In short, it sums down to selling off one’s assets to clear away accrued debts.

Chapter 11 bankruptcy - Focuses on companies or individual reorganizations. Its main goal is to become profitable after restructuring and reorganizing. Chapter 11 allows a business to continue its day to day operations without interruption while it is working on a debt payment plan under the supervision of the court.

Chapter 13 bankruptcy - This is repayment of debt with lowered payment plans. This can be achieved through workable debt repayment plans. The pros to this are that the debtors get to keep all their assets.

Filing for bankruptcy eventually hurts one’s credit ratings. All the three chapters will leave a stained mark on your credit report should one choose to file either.

In conclusion, debt settlement programs and bankruptcy are but two sample options that one may opt to choose from when it comes to handling debt. If at all one has lost their job or maybe has become sick, choosing bankruptcy may be the best alternative. Debt settling programs alternatively might be the better option if you want to reduce the dent on one’s credit or credit report. In short, weighing the pros and cons of either of the two should be done so as to get the right solution.