Companies who assist in negotiating a lower amount due to creditors are considered debt settlement companies. For a fee these companies will contact creditors after payments have stopped being made and explain the person's inability to pay the current amount due. This is when the negotiation process begins. Once an agreement is reached the company will begin paying creditors in lump sum payments from the clients funds deposited with the company. Negotiations result in reduction of the amount owed.
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Bankruptcy requires filing a request with the bankruptcy court for relief from creditors. It often involves a lawyer and court and lawyer fees. It is possible for an individual to complete the process alone, however, it requires properly completing all the necessary forms and submitting them in a timely fashion. Court fees must be paid upfront and the filer must appear in court several times to stand before the judge and creditors to explain why they cannot continue to make timely payments. All filers whether, using self representation or a lawyer, must complete a financial counseling course which also has fees.
Debt settlement is performed by an independent private company. It has nothing to do with the government, courts, judges or lawyers. Only a true bankruptcy performed by a legal United States court can show up as a bankruptcy on your credit report.
After creditors have been paid through the settlement process the credit report will show $0 due below the previous credit history for each account. After bankruptcy the credit report will show $0 due through the bankruptcy process below the previous credit history for each account.
Getting out of debt is never easy, and credit scores will reflect the process. Neither form of debt relief will wipe credit history clean. However, they will provide a means of starting over, and restructuring budgets and financial planning.
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