In a recent issue of the L.A. Times, Liz Weston compared bankruptcy and debt settlement as ways to deal with overwhelming debt.  Her column was good, but given the limited space she had, it was a bit brief.  In this post I will expand on her discussion.

I.  Debt Settlement

The idea behind debt settlement is pretty simple:  You ask the creditor to accept less than you owe in full satisfaction of the debt.  You can do the negotiation yourself, or you can hire someone to negotiate on your behalf.

If the creditor agrees to lower the balance, you pay the reduced amount, either in one lump sum, or in a stream of payments.  Unless you have a friend or relative to help you, the lump sum approach isn’t too likely because if you had the lump sum the creditor would assume you could get more and would demand more.
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