Debt settlement

Debt Settlement Also known as Debt Arbitration or Debt Negotiation, is an aggressive approach to debt reduction, which may be appropriate for debtors with serious amount of debt and are considering bankruptcy. A debt settlement agency negotiates with the creditors to settle the debt for a lower amount than owed, as the debtor saves their money for a lump-sum settlement payment. During the debt settlement process, the debtor will obtain a letter from the creditor stating the debt obligation was fulfilled. The creditor will typically make a report to the credit bureaus that the debt has been “Settled for less than full amount”, “Paid” or “Settled”.

Creditors will usually only settle for less than owed when the debtor is under serious financial strain because if the debtor chooses to file bankruptcy, then the creditor is at risk of receiving only a small portion of the original debt. If the debtor does not demonstrate financial hardship, the creditor may refuse to settle the debt and instead choose to pursue additional collection activities, including legal action.


refernce :http://en.wikipedia.org/wiki/Debt_settlement