When hiring an Arizona bankruptcy attorney you need to know which form of debt settlement is best for you. In this article we will talk about the difference in debt settlement and bankruptcy and which is better?

That is such a good question, and on that bankruptcy attorneys all the time. Most people facing debt problems want to do the right thing. They want to pay their debt. And if they are able to and they have the means to do it, I'd suggest they do it. But the majority clients simply don't have the means to pay it.

But first so we're clear on this, let me give you a brief explanation of it.

Debt settlement is when a company that takes a monthly payment from you. Typically, they will sit down and prioritize your debts and find out how much debt you have. They earn a percentage off of the debt that they settle for you and they will come up with a payment schedule for you.

Let's say, for example, you're going to pay them $700 a month. If you pay that $700 a month, that's put into a savings account for you in their name. Then, once there's a lump sum that's sufficient to settle with your creditors, they'll start the settlement process and of course, they're charging for this service and they charge a percentage fee.

Say, for example, you have three credit cards that total $25,000. This is all unsecured debt, meaning there's not a house or a car. It's just credit card debt. The debt settlement company will tell you that they can settle the accounts for $15,000, which is 60% of the debt. And then they'll charge you a fee of $3700, which is 15% of the total debt.

So really if you look at that, your total payment to settle your $25,000 credit card debt is actually $18,700. And then again, you're making this $700 a month payments for 24 months or longer in order to meet this goal.

So what happens for a lot of people is even $700 is just simply too much.

And the other issue that happens is that the creditors don't necessarily agree. These three credit card companies may not be willing to settle with you. This is not something they'll go along with, especially if you're employed. They'd be more inclined to simply sue you and garnishee your wages and get the amount from you that way.

The problem with the debt settlement company is, they can't represent you in court because they're not a law firm. So what often happens is that the majority people are half way through their debt settlement process, which means they've probably paid them the $3700 that they owe the debt settlement company, but they don't have sufficient funds to settle or the credit card companies aren't agreeing to settle and they're facing law suits.

Now if you compare that to bankruptcy, first of all, bankruptcy is typically much less expensive. You can spend anywhere from $2500 to $3500 including all the fees in bankruptcy.

Also remember the 24-month payment that you'd be looking at with debt settlement? In a chapter 7 if you qualify, you don't make any payments on your debt.

Another issue, not only are you not making any payments, not only is the cost less expensive, but finally bankruptcy can take as little as four months as opposed to the 24 months we were talking about, making all those payments on a monthly basis.

So that's how bankruptcy can be so much better.

And then finally, if you don't quality for chapter 7, you can quality for chapter 13, which is essentially the same plan that you put together with your debt settlement company. You are making a minimum monthly payment; but better yet, you have the protection of the court, so none of your creditors can bring a law suit against you.

We really suggest bankruptcy. It's more efficient. It's less expensive and you have court protection, which is so important when you're dealing with your creditors.

Once bankruptcy is finalized or even after you've filed bankruptcy, you can start a new credit relationship with creditors. You can start building up your credit, whereas while you're in a debt settlement for two years, none of your bills are being paid and your credit's being trashed.

Now bankruptcy is going to trash your credit, too. But it gives you the opportunity to rebuild it. It's completely different from debt settlement because it's such a quick process.