Since the new bankruptcy laws have been passed it has become difficult for consumers to file for bankruptcy.
The eligibility criteria have been made more rigid and not every consumer can find debt relief through this method any more.
Debt settlement has been in the market for about a decade now.
The recent change in the bankruptcy laws has given it its recent popularity.
This is closest possible option for debtors who are about to declare bankruptcy.
Settlement of debt has its own set of consequences but it is much less than that of bankruptcy.
A settlement would reflect on a person's credit report for about 4 years time whereas a bankruptcy would show for at least 7 years.
The process involves the debtor to use his savings to negotiate a settlement amount with the creditors.
A debt settlement company will negotiate a settlement amount usually in the range of 40% to 60% of the total debt balance and the remaining needs to be paid by the debtor.
Creditor generally wants the money to be paid in a single down payment.
Hence if the debtor does not have so much in savings he can open a savings account where he can deposit the money instead of paying the creditors' once the amount is about 50 % of the total balance the settlement company can negotiate for him.
The recent change in bankruptcy laws has been a major reason for the sudden increase in debt settlement companies in the market.
Along with the good settlement companies there are some unethical companies which have also made way into the market.
When the consumer is searching for a settlement company he should be careful to avoid companies which promise unachievable targets.
A good back ground search should be done to avoid any kind of fraud.