When it comes to debt settlement sometimes people ask the question "Is settling debt like filing bankruptcy?" The answer is no, and actually it can help you even avoid bankruptcy.
Debt settlement, when done right, can even help your credit rating.
When a debt goes unpaid it will likely show up on a credit report as a charge off or a judgement.
This depends on the creditor as to their actions and how it is reported.
If they have gone to court and received a judgement then this will show on your credit.
If a company doesn't have the resources to get a judgement they will charge off the account, meaning they have taken it as a loss.
By contacting the creditor and working out a settlement your credit may actually be able to rebound.
Most times a creditor would rather collect something on a charge-off or judgement rather than waiting years to actually receive anything from their judgement.
When an account has been charged off the creditor has already taken a loss on the account.
Since it is always better to get something rather than nothing, these creditors will settle an account for much less than what is actually owed.
It is not uncommon to settle an account for 50 percent or less of what is actually owed to a creditor.
Once a settlement is worked out it will be reported to the credit bureaus as a "settled" account.
This is much better than a charge off as it shows even though the debt was not paid in a timely fashion, at least it was paid and the consumer took the responsibility to get the account settled.
Filing bankruptcy will stay on your credit for at least 7 years and depending on what type of bankruptcy you file the only ones who will get paid will be secured creditors.
As you can see settling debt is not like filing bankruptcy, it is actually a much better alternative.