Whether you are facing student loan debt, credit card debt, medical debt,  mortgage debt or small business loan debt – you need to do your research and know your options to become debt free.  The three most common debt relief options are bankruptcy, debt consolidation and debt settlement.

3 Most Common Debt Relief Options

  1. Bankruptcy

A Chapter 7 bankruptcy completely eliminates your debt, but you must have little or no disposable income.   A Chapter 13 bankruptcy is a reorganization of your debt.  The debtor must have income or assets and pays back a portion of the debt on a payment plan. This option allows you to eliminate your debts for a smaller percentage than you owe and even allows you to strip a lien from your property if the fair market value is less than what is owed.   The advantage of declaring bankruptcy is the obvious benefit of being free of debt in a relatively short period of time (usually 3-6 months).

But there are long-term ramifications to consider with a bankruptcy.  It will be difficult to get a mortgage if you don’t already have one.  Your credit will suffer for 7-10 years.   You will lose all your credit cards. Also, in most cases, you can’t declare bankruptcy if you have previously declared it in the last six years.  So if you find yourself in financial trouble in the future, bankruptcy will not be an option again for many years to come.  Of note, if you have student loans, it is almost impossible to get student loan debt dismissed in bankruptcy.


  1. Debt Consolidation

Another debt relief option to consider is debt consolidation, which combines your debts into a single loan at a lower interest rate.   Debt consolidation can be beneficial in that your credit won’t suffer, since you will be paying off your debt.  You will, in fact, be paying off your entire debt.


  1. Debt Settlement

The significant difference in debt consolidation and debt settlement is that with the latter you do not pay your entire debt.   In a debt settlement, a negotiation is made with your creditor to reduce the total amount of debt that you owe.   The savings can be significant! Depending on the type of debt and age of delinquency, settlements can reduce your debt by as much as 60-80%.  A debt settlement is a viable option for student loan debt, credit card debt, medical debt, small business loan debt, 2nd mortgages and Home Equity Lines of Credit (HELOCs).

When considering a debt settlement as an option, it is important to make sure you are working with a law firm and not a debt relief company.  Some creditors won’t even talk to a debt settlement company. They don’t have that choice when a consumer hires an attorney. A law firm client signs a power of attorney, which not only permits, but also requires creditors to discuss the accounts with the attorney.  Additionally, if your creditor sues you – your debt settlement attorney can represent you.

Other than significant savings, debt settlement can also be an affordable option.  Most debt settlement law firms will offer you a 2-3 year payment plan.  Usually the monthly payment is less than the minimum payment the client was already paying on their credit card.

One downside of debt settlement is that your credit will take a hit in the short term (if it hasn’t already) until your debt is settled and you pay off the debt.  The good news is that credit experts estimate that your score will rebound in as little as 12 months after completing a debt settlement.  So if your attorney negotiates a deal for 40 cents on the dollar with a 2-year payment plan, then 60% of your debt is wiped out and your credit score can rebound within 3 years of beginning your debt relief journey.

Debt is a heavy burden that can feel paralyzing.  It’s important to know that even though you might feel trapped, there are options.  In a few years from now, you can be back on top again.   Make sure you consider your realistic financial situation and your goals for the future.   And do your research.  Just as you would research any big purchase, you should do the same when making a decision regarding your financial future.


Daniel R. Gamez, an attorney focusing exclusively in debt settlement, is licensed to practice in all state and federal courts in California and Texas. Mr. Gamez owns and operates the Gamez Law Firm in La Jolla, CA. For more information, please contact Daniel Gamez at 858-217-5051, daniel@gamezlawfirm.com or visit gamezlawfirm.com.