According to the law of bankruptcy, the debtor eliminates all his debt and creditor gets nothing especially in the case of unsecured debts.
When a person files bankruptcy, he claims that he has no money to pay back to his creditors and want his debt to be eliminated.
Once the bankruptcy case is filed, the tangible assets of the borrower are liquidated and whatever money is retained from liquidation is used to pay to the creditors.
If the debtor does not own valuable assets then the debtor gets rid from his debt and creditor gets nothing from it.
When a borrower files bankruptcy it is clearly indicated on his credit report.
Due to this creditors hesitate in giving away loans to such a person in the future because they fear that they will not get back their money.
Even if they give such people loans the terms are very strict and unfriendly.
Such as, they charge higher interest rates and give really less time to repay the loan.
They even ask for huge amounts of deposits and collateral before providing loan.
A person who has bankruptcy marked on his credit report also face problems in attaining employment.
Now day's employers check the credit reports before providing employment.
Even if they provide employment they offer very low wages and exploit the situation of their workers.
Due to all these reasons people have started opting for debt settlement instead of bankruptcy.
In debt settlement, the debtor and the creditor negotiate with each other.
During negotiations, the debtors ask for a discount on the original loan amount.
This discounted amount is 30% of the original loan amount.
It is very easy to pay the 30% of a huge loan amount instead of paying the loan amount in full.
The reasons that make debtors and creditors consider this option over bankruptcy are that creditors get some part of their money back and the debtors get relaxation from huge amounts of debts.
Although debt settlement is even reported on the credit report but the effect of this reporting is not as bad as bankruptcy.
One thing one should keep in mind is that they should have the appropriate negotiating skills to tackle the creditors.
If they do not have the appropriate skills then they should consider hiring a debt settlement company which bargains with the creditor on the behalf of their clients.
You can acquire more effective results by hiring a settlement company because they have the experience needed to tackle these matters.