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Debt settlement is similar to bankruptcy in several ways, but there are several important differences in the two as well. There are also important differences between the two different types of bankruptcy, Chapter 7 and Chapter 13.

A Chapter 7 bankruptcy is a complete discharge of your debt by the courts. This is generally very hard to obtain, and you can lose most of your assets in the process. A Chapter 13 bankruptcy is a partial discharge of your debts.

In Chapter 13, the courts will determine how much they feel you should be able to pay toward your debts over a specific period of time, based on your income and reasonable expenses. You are not likely to lose many assets, but your credit will still be affected adversely. You will also find yourself making debt payments to the court, who will then distribute the funds to your creditors as they see fit.

Debt settlement is similar to Chapter 13, in that you generally make one payment based on your income and reasonable budget. However, instead of making this payment through the courts, you make the payment to the credit counseling agency assisting you. This money is then distributed to your creditors as has been negotiated by your agent.

The biggest and most important difference here is that debt settlement does not have any additional adverse effects to your credit report or rating. Bad debts and slow pays stay on your report for seven years after payment or posting, so it will be on your report either way.

In fact, your credit score can actually be benefited by the arrangement, because you are paying off your debts voluntarily. You may also have certain debts completely removed from your credit report as a condition of lump sum payment, depending on negotiations with your creditors.

Finally, by researching and then comparing as much debit settlement providers, borrowers will be able to identify the agency that meet your financial situation properly, plus the cheapest interest rate the market is offering. For example, read our last debt management service review: Debt Help 101 Review.

Nonetheless, it's advisable working with a seasoned and reliable debit counselor before arrive to any conclusion, this way you save time through specialized advise & money by getting the best results in a short span of time.

H. Milla is editor of the Reputable Debt Settlement website – visit and see his best rated debt settlement company recommendation.

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Tags: debt management, debt relief, debt settlement, settling debts