When your credit is seemingly insurmountable, debt settlement and debt relief are two choices you can avail before considering to file for bankruptcy. These options may sound the same but they employ different techniques which have different results.
Basically, a debt resolution is a service of a lawyer. Whereas, a debt settlement involves a third party credit settlement firm who will negotiate for a reduction of your outstanding debt.
Now, what are the key features of the two?
Debt Settlement
- Debt settlement does not start until the client or debtor reaches an accumulated amount on trust funds, and fees for the debt settlement company are paid.
- You do not have legal representation from a debt settlement firm. If you get sued, you have to face it yourself, or seek the representation of an attorney at your own cost.
- In a debt settlement, only the principal is negotiated. This does not stop the interest from accruing.
- Representatives of debt settlement firms specialize in negotiations.
- Some of these companies may have attorneys to deal with client’s rights violations by the creditor or their representatives. However, this is not the focus of their service. Most often debtors are left to deal with violations by themselves or seek assistance of an attorney of their choice.
Debt Resolution
- Law firms will work with the debtor or their client immediately upon enrollment on their debt resolution program. This involves some applicable fees.
- The law firm will represent their client in instances the debtor gets sued or receives summon for court appearance.
- The law firm will deal with the debt in whole (principal and interests) as much as it can. If they are unsuccessful, they opt for a settlement as a last resort.
- Those who work on debt resolution are well-versed in consumer law and consumer rights, including a profound knowledge of contract laws.
- Client rights are protected. In the event that they see a violation of their client’s rights, they take legal actions against the violator on behalf of the debtor. Except for special cases, the creditor nor the collecting agency, cannot directly call the debtor. These calls are to be made with the representing law firm.
In both options, whether you are to choose debt settlement or debt resolution, expect your credit score to be negatively affected. Debt resolution seems to have a slight advantage on credit effect. This is because most debtors who avail of debt resolution already carry a negative credit score, and law firms negotiate that your debt would appear as “Paid as Agreed” or “Settled” while you are enrolled in the resolution program.
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