In debt settlement your debt is negotiated with your creditors to obtain a reasonable debt settlement amount. Typically, most accounts can be worked out between 40-60% of your balances. Other types of unsecured debt that can be negotiated are: medical and hospital bills, and personal unsecured loans.

 

Debt consolidation is not a loan. It is a company that falls under non-profit status and must have a license to practice Consumer Credit Counseling Services. This service requires you to work with a Debt Repayment Representative who negotiates with your creditors on your behalf to reduce your interest rates, but you're required to pay 100% of your balances, which could take 5 - 7 years. Most importantly, you make payments to the debt consolidation company and they pay your creditors. Due to this 3rd-party intervention, most creditors view you as having enrolled in a Consumer Credit Counseling Service (CCCS) or entered Chapter 13 bankruptcy.

 

The Bankruptcy Reform Act will push a lot of people out of Chapter 7 and into Chapter 13, where they will have to pay off their debts.  If your income is greater than the median income of your state- which range from $29,752 in West Virginia to $55,525 in Alaska- you have $100 or more of disposable income a month, you may be forced into a Chapter 13 bankruptcy. 

 

Determining Disposable Income
The IRS standards determine what is reasonable to spend on housing, food, clothing, transportation and personal care.  Monies necessary to continue your business are also considered reasonable expenses.  Other reasonable expenses include:  cost for caring for an elderly, chronically ill handicapped family member, charitable contributions up to 15% of gross income, up to $1,500 a year in tuition at a private primary or secondary school.  Subtract these reasonable expenses from your monthly income and what you're left with is your disposable income.  If less than $100 a month, you can file for Chapter 7.  If it's more, you may have to file Chapter 13.