For starters, bankruptcy is a legal process while settlement of debt is a mutually determined contract that both parties enter into. In case of bankruptcy, you will have to involve the court, the attorneys, the legal experts - the whole party without any exception. On the other hand, debt settlement can be, at least in theory, completed between you and your lender. Needless to say, negotiating with an individual who has a clear goal in mind and who knows what he or she can offer and the what he or she cannot offer will be a lot easier than going to the court.
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Secondly, bankruptcy is not necessarily cheaper than settlement. If you employ the services of a bankruptcy attorney, the fees payable will definitely cost you a lot. Secondly, you will have to pay for utilizing the services of the court as well. All this combined means that you do not necessarily get a cheaper option when you go in for bankruptcy. Thirdly, chance of getting real relief that you want is a lot higher in case of settlement. Both the lenders and the borrowers can use the threat of bankruptcy to make a huge difference. If the borrower is insistent on excessive relief and is not prepared to negotiate, the lender can threaten to walk out of the deal and push the borrower towards bankruptcy.
On the other hand, the borrower too can do the same if the lender is being very inflexible. Both the parties have a better chance of working well together with each other if they go in for such a solution. Another reason why debt settlement is better than bankruptcy is that it leaves you all your assets in your hands. There is no need to liquidate all your hard earn assets just to repay a small portion of the debts in full. Instead, you can retain your assets and get extra time to repay the credit card use another unsecured loans that you have in your hand.
Finally, chances of repairing your credit score caused by the debt settlement are higher if you make use of this option. In case of bankruptcy, the damage done to your credit score cannot be removed for the next eight to ten years. That is a very long time and it is not wise to take any financial decision for such a long time without giving yourself the freedom to back out of it whenever you want.
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