Some high-income individuals prefer to find an alternative to filing bankruptcy as a means of simplifying their debt obligations. Their preference is often rooted in their fear of losing assets or simply wanting to avoid the time commitments of reorganizing in bankruptcy.  Debt settlement provides an advantage in those respects compared to bankruptcy.  That's because the settlement process takes place outside of court and can be completed by an attorney in a short amount of time.  It's a good idea though for debtors to compare their expected outcome in bankruptcy to that of debt settlement even when their initial preference is to pursue settlement of debt.

Debt Settlement is a process that involves resolving debts for less than than the total amount demanded by a creditor.  The debtor's attorney starts by outlining a list of accounts that the debtor wants to resolve and sets a timeframe to attempt to settle them in.  Where a lawsuit or wage garnishment is pending the process can be accelerated to prevent further damage to the debtor's finances.  In most cases it takes about a month to complete the back and forth settlement process with a large creditor like American Express or Discover.  Settlement with smaller creditors is usually faster since they have a more streamlined process for debt resolution.

When consumers hire an attorney they help to avoid making costly mistakes in the process.  Creditors often attempt to use the debtor's interest in reaching a reduced settlement as a chance to gain valuable financial information from the debtor, which they could later use in a lawsuit against the debtor. The creditor will often ask for a list of the debtor's cash and other valuable assets as well as current employment information. The debtor must be very careful about freely providing information to a creditor.  In some situations a bank can actually offset a debtor's bank account without even telling them or needing to sue them.

It's important that a debtor save up money to be in a position to meet the terms of newly reach settlement agreements.  Without large amounts of cash the creditor is unlikely to accept a sharp reduction in the amounts they are owed.  This is another reason why debt settlement is more appropriate as an option for high income debtors. Once the debtor has saved up some money the attorney can begin tendering a settlement offer.  The amount that a particular creditor will accept in full satisfaction of the debt depends on the creditor's own internal policies. The policies are often based on the length of default of the debt, the amount of the overall debt, and the debtor's financial circumstances at the time the debt was incurred and at the time of settlement.

The debt settlement attorney keeps a global perspective in mind.  In most cases settlement of only one of the debtor's many debts is not effective enough to reduce the financial burden on the debtor.  Although in some cases every bit helps and that is enough of a benefit to keep the individual away from bankruptcy.  However, when looking at the overall cost of the process the individual should seek counsel from a tax advisor because when the creditor forgives a portion of the debt it may result in an extra tax on the individual.  These taxes can be significant and in some cases they can outweigh the benefits of the settlement process.  Bankruptcy on the other hand is usually an exception to debt forgiveness taxes.

Finally, debt settlement should not be confused with debt consolidation, or even credit counseling.  Credit Counseling is the 2 part course that a person filing bankruptcy needs to complete before and after they file bankruptcy.  It usually takes about 2 hours.  Debt consolidation is the term made popular by large national companies that arrange for reduced interest rates and sometimes reduced principle amounts on debts that the debtor pays toward as a single group.  The problem with debt consolidation is that the process can take several years and often times it does not save the debtor enough money to make them financially healthy again.  For more information about debt settlement contact a local attorney.