What is Debt Settlement?
Debt Settlement, also referred to as Debt Negotiation or Debt Arbitration, is a bankruptcy alternative. Debt settlement is a relatively new industry, the industry was launched largely due to the very loose lending practices of banks and financial institutions in the last 20 years.
A settlement occurs when a creditor agrees to settle an account for a dollar amount that is less than the amount owed. Settlements can range anywhere from 20 to 80 percent of the balance owed but companies that are regulated (TASC members) can not quote you less than 50 percent. Be very wary of any company that promises you 30 or 40 percent settlement. There are no guarantees in debt settlement.
Reaching a settlement is often in a creditor’s best interest because a debtor filing bankruptcy would result in total loss of funds. Settlement provides a “middle ground” where debtors and creditors can both benefit. Debt settlement also often provides a creditor with more funds than they would receive through other means of collection.