Bankruptcy is an undesired situation for corporate organizations and individuals. Luckily, there is a legal way to prevent from being declared bankrupt and that is debt settlement. In debt settlement, an organization convinces the creditor that it will pay back the creditor an amount which is less than what the organization actually owes. Off course, to convince the creditor, the corporate organization has to present strong plans of generating the money to pay back the creditor. On the other hand, the creditor will normally not settle for anything less than the full payment if the ability to repay the full amount is evident to the creditor. In any case, settling debt is still a better option than bankruptcy as in the latter case conditions may be applied to you such as you may not be allowed to buy a new property or a car for a stated period of years which might be long depending on the status of bankruptcy.

Debt settlement only becomes the available option after a corporation fails to pay back many installments of debts or has many late payments. The target of the debt settlement is to moderate the amount you have to pay to the creditor and reduce it.  Debt settlement option is conditional on certain types of debts and so cannot be an option for houses which can be foreclosed or cars that can be repossessed. Neither is it applicable for student loans. Creditors settle for debt settlement only when they realize that unless they go for this settlement, they won’t get any payment back at all because of the financial situation of the debtor. It is a way out for both the creditor and the debtor.

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There are debt settlement companies which offer these services to debtors. What happens is that debtors stop payments on their outstanding debts and instead pay the company which takes up the task of debt settlement. This payment is deposited in a dedicated account and once the amount available is enough to negotiate a settlement, the same is done by the debt settlement company with the creditor. Legally, debt settlement companies are not allowed to charge their clients upfront, so either they charge you a percentage of the total debt or a percentage of the total debt eliminated. Instead of hiring a debt settlement company, a debt settlement lawyer may also be hired. The lawyer may charge a fixed amount for the whole process or may charge by the hour or as in the case of debt companies may take a percentage of total debt or debt eliminated.

The debt settlement companies, having been in this business for some time, have built business relationships with creditors so it is easy for them to reach a settlement with the creditors. Furthermore, because of their experience, they are more likely to strike a better deal for you than you can for yourself. Usually, debt settlement companies bundle up their settlements into large lots of settlements and convince the creditor for 35% to 50% of the due debts.

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