Debts can be overwhelming to any person no what situation they occupy. When debts become too much to handle, individuals may look for help in any shape. Often times, they declare bankruptcy when they find themselves in a situation that has become out of control. However, filing for bankruptcy can be frightening to some people and can signal the wrong thing for future creditors. There are other options available to those who are having a difficult time paying back debts. One option is debt settlement. This is a less severe method to use to figure out any debt situation. With the help of a proper lawyer, debt settlement can allow you to negotiate your debt with your creditors to adjust what you owe.

At Los Angeles Bankruptcy Attorney, we are prepared to assist you with handling your debt problems no matter what route you choose to take—this includes debt settlement. Our lawyers are experienced and well-versed in bankruptcy law and will provide any client with their expertise.  You do not have to alone during such a stressful time. With our assistance, you can be assured that you are following the proper steps and that the path you take is right for you.

What is Debt Settlement?

If you find yourself missing payments and accruing large amounts of debts, you should reach out for help sooner than later. Often times, you should contact the creditors you owe first. By contacting them first, you may begin discussions about settling your debt. They may be willing to help you by reducing the payment amounts and more. This is the beginning of the process of debt settlement. Creditors may prefer you contact them before you have issues with your debts to find a proper solution. If you choose to ignore your growing debts, the creditors may be forced to take the debts to a court which may lead to them take your income and any other property in order to compensate for the unpaid debt.


  • Alexander has a debt of $100,000 to a crediting agency. He has been maintaining payments; however, he recently has lost his job and has found one that pays less. Because of this, he misses making payments to the agency and defaults.

In general, debt settlement is usually a negotiation between you and your creditors with the assistance of an experienced lawyer to reach a discounted settlement on your debts. This method of managing debts involves a direct discussion with your creditors to settle the debts. For the creditors, this may be a preferred means of action since they will not have to deal with the courts which can be long and expensive.


  • Alexander owes around $100,000 to a crediting agency. To him, the amount is exorbitant, and Alexander is unable to make the payments on time. In order to help, makes a debt settlement with the agency. Instead of $100,000, he only has to pay $75,000 with a reduced interest rate.

The above scenario describes a common form of debt settlement where the total amount of debt is reduced. During the negotiation period, you, your lawyer, and your creditor will discuss any possible reductions of the debt, other methods of payment, and extensions of any kind.

Overall, debt settlement is a method through which anyone can receive help with their debts. It is a means through which you can figure out payments before having to declare bankruptcy.

Debt Settlement Process

When considering debt settlement, you must be aware of the steps you should take. Usually, once you feel that you will not be able to make a payment on your debts, or if you feel that you need relief in some form, you should begin by contacting your creditors. Once you describe your situation, they may be able to accommodate you in some way. This way your creditors will not have to sue you in court. Though it is crucial to note that in most cases, debt settlement is successful when you are clearly unable to pay back your debts. This meaning that you simply cannot afford to make your payments.

However, if they are unable to do so, or if the amount of debt you owe is large, you may seek the assistance of a qualified bankruptcy lawyer to start the debt settlement process. A lawyer will help determine what your best option is and how you may be able to go forward in repaying your debts. They may also assist in the negotiations.

Depending on your case and your preference, the debt settlement process may be carried out on your own, with the help of a bankruptcy lawyer, or with the help of a debt settlement company.

With the assistance of a debt settlement company, negotiations may be made between you and your creditor to possibly reduce the debt amount or even lower the interest rates. Usually, the debt settlement company will help you open a settlement, or savings type of, account where you will deposit a monthly payment. Once you have deposited enough to make a lump sum payment, the company will negotiate with the credit for a reduced payment with the lump sum.

With the lump sum, you may have to come up with cash to make the payment. Usually, creditors will take lump sums of cash to cover a reduced debt. However, the debtor must be able to come up with the total amount in order to get rid of the debt. This may mean the debtor will have to get a second job, sell off valuable assets, or, even, ask friends and family for money.

This process can be tedious and long for individuals who have large amounts of debt, or for individuals that may have a difficult time coming up with the cash.

Bankruptcy vs. Debt Settlement

Bankruptcy and debt settlement are both methods through which you use to handle any excessive debts. However, they differ in many important ways. Also, your specific situation may determine which method you use for debt relief.


For most people, bankruptcy is usually a last resort option that tends to have negative connotations. For many, this is because of how it may look on their credit report for years to come. However, it is important to know what bankruptcy entails, and how it may help those with exorbitant amounts of debt.

Bankruptcy is not necessarily a bad action to take. By declaring bankruptcy, you signal that you are unable to pay back your debts. It is a legal process through which you can figure out who you will repay your debts. Usually, it begins with you filing a petition in court to indicate that you are unable to pay your debts. Once you have filed for bankruptcy, your case will be taken to court and a judge will determine how much you must pay back. Also, they may look at your income and assets to figure out a payment plan that seems feasible.

There are two forms of bankruptcy to consider: chapter 7 and chapter 10. Under chapter 7 bankruptcy, your debts may be cleared entirely; however, you may lose your assets in the process. This is the quickest option, but it will stay on your credit report for ten (10) years. Chapter 10 bankruptcy, on the other hand, will reduce the total amount of debts you owe, and you may keep your assets. The judge will determine the payment amount you would have to make under this option, and it will stay on your report for seven (7) years. With this option, payments may also last between five (5) and seven (7) years depending on the amount of debt.

With a bankruptcy option, you will need the assistance of an experienced bankruptcy lawyer to help determine if it works for you and your situation, and to help determine which type works best. Even though bankruptcy laws are federal, each state has their own set of exemptions and considerations and it is important to go over them.

Debt Settlement

Debt settlement is an option that you may make to resolve your debts. Usually, this is an option for individuals who wish to avoid bankruptcy or who are unqualified to file for bankruptcy. Also, this type of solution is not taken up in court. This option may also lower your credit score and be on your credit report for up to seven (7) years. Debt settlement will not damage your credit score as severely as bankruptcy.

With this option, you may negotiate a repayment plan with your creditors directly with the help of an experienced lawyer. An important aspect to consider about debt settlement is that you usually have to make a lump sum payment towards the creditor. This means that after the negotiations, you may have to pay a certain amount of the debt in full—though usually, it is only a fraction of the whole debt. This is a crucial point to consider about debt settlement. Whereas declaring bankruptcy may allow you to restructure debt payments in accordance with your circumstances, debt settlement may often resolve with making a lump sum payment which can still be large. Often times, you may have to come up with enough cash to cover the necessary amount. Of course, there are means through which you may be able to pay the creditor.

Also, you may seek the help of a debt settlement company who will take on your debts. Usually, they can take care of the lump sum payment, and you will have to make payments to them.

With debt settlement, you have many options depending on your debt amounts, the creditors, and the negotiation process. This option can provide different forms of relief like a lowered debt owed or lower interest rates.

Debt Settlement Companies

If you choose to undergo the debt settlement process, you may seek the assistance of a debt settlement company. As its title suggest, this type of company will help you in negotiating a lower payment or total amount of debt on your behalf. They may also take care of the total debt amount lump sum, and then you will make payments to the company. Like with any other type of business, you should be aware of the company’s methods and their experience for it will have a great effect on you.

In California, under Financial Code Section 12000, debt settlement companies have to be licensed by the state in order to operate. However, companies from out of the state can still help you—they just won’t be licensed and verified by the state. Also, you should be aware of companies that may scam you.

First of all, always look for companies with excellent ratings and without troubled histories of debt settlement. Obviously, for a successful debt settlement, you need a company that has a high success rate and that works well with its clients. You should always check a company’s standing and its history.

Secondly, do not work with a company that asks for an advance or that guarantees your debt will be settled. It is unlawful for a company to ask for money before handling your business. Also, it cannot be guaranteed your debt or any part of it will be settled.

Next, try to make sure that the company has fees based upon the amount of debt that has been eliminated rather the amount you started out with. This will ensure that the company will work harder for you and that you could benefit even more.

Going through a debt settlement company is in no way required when choosing this method of debt relief. You may choose to seek the help of a bankruptcy attorney to help with the debt settlement process.

Important Aspects to Consider About Debt Settlement

There are some risks that may come with debt settlement. First of all, there is no guaranteed success with debt settlement cases. Usually, it depends on your case, the size of the total amount owed, and the actions of the creditors. Not all creditors will go through with debt settlement depending on their policies.

With debt settlement, your credit score will still be affected. Of course, your credit score would have been affected by missing, or failing to make, your payment. This will appear on your credit report for seven (7) years.

Also, despite an elimination, or reduction, of debt, you may still be faced with late fees associated with the payments or any penalty fees. Interest may still be applied to the total amount owed; however, during negotiations, this may also be reduced depending on your situation.

On top of the debt, you may have to owe additional fees depending on the actions you take and your cases. With debt settlement companies, you may have to owe them a percentage-based fee based on the amount of your debt. Also, there may be additional fees associated with the settlement, or savings, account.

If your debts are eliminated, or reduced, the forgiven debts may still be taxable under federal law. The Internal Revenue Service, or IRS, considers any forgiven debt to be income which is taxable.

Lastly, it is important to know that the debt settlement process may take up to a couple of years to complete. It is not a quick solution; however, there is no real quick solution to handling debts. The negotiations may last a while, and the repayment process may take even longer.

Some key points to remember include:

  • No guaranteed success
  • Lowered credit score for 7 years
  • Fees and penalties still apply
  • Forgiven debts can still be taxed
  • Takes 3 to 5 years to complete

Even though debt settlement may prove to be beneficial, it is crucial to take into consideration all the possible fees and variables that may be added to your debt. Of course, all of this is dependent upon your specific case.

Finding a Bankruptcy Attorney Near Me

Once you have found yourself drowning in debt, you start to feel overwhelmed and completely unsure of what steps you can take to resolve your issues. Of course, declaring bankruptcy may be a path that some individuals rather not take due to the repercussions. Rather than being sued by creditors or facing any other punishment for not making your payments, you should think about debt settlement. With this option, you can negotiate with your creditors on how much you are able to pay back and what your payments will look like. This option is for individuals who have found themselves in situations that have become too much to handle.

No one should have to handle such hardships on their own. It never hurts to ask for assistance. At Los Angeles Bankruptcy Attorney, we have a team of lawyers who are well-versed in these types of cases and can help you determine what path you should take to take a step towards a solution. With debt settlement, not only can we help you during the process itself, but we can help negotiate for you. If you are looking for an excellent bankruptcy attorney for assistance, contact the offices of the Los Angeles Bankruptcy Attorney at 424-285-5525. We are here to make sure that you find a solution that can work for you.