Debt Settlement vs. Debt Dismissal

Debt Settlement vs. Debt Dismissal

It is the dream of nearly every citizen to have their debts done away with. Nobody, even the creditors likes debts. People are always in a bid to solve their debt problems to let them free. You can either decide to settle your debt in an amicable agreement or have your debt dismissed if you have a valid case for that. The difference between debt settlement and debt dismissal forms the basis of discussion here below where the distinguishing features will be highlighted.

  • Definition

The first distinguishing feature is their definitions. A debt settlement is an approach used to reduce debt where both the debtor and the creditor agree to a reduced sum which should be paid in full.

On the other hand, a debt dismissal is a scenario where your debt is totally done away with. You therefore do not need to pay anything should your debt be dismissed. It is the hope of many people to have their debts dismissed than settled.


  • Taxation

When your debt is reduced, the IRS will tax the debt relief as income and therefore you will be required to pay tax for the reduced amount. This is a disadvantage since you get an extra charge that you did not expect more especially if you had debt consolidation to pay other debts.

Debt dismissal does not have room for taxation since you pay nothing at all.


  • Contributing Factors

In a debt settlement scenario, you have to hire a company that will help you to get out of debt. You have to default regular payments for you to get a settlement. This is because most creditors will only offer settlements after defaults. The risk associated with debt settlement is that you have to default payment and your name will be listed in the credit bureaus. This will affect your future engagement with creditors.

The major factor that leads to a debt dismissal is lack of proper documentation by the debt collection agency. If there is no proper documentation, then the debt may be dismissed. You will not be listed in credit bureaus. Since the creditors will always protest against debt dismissal, it is important to get a debt Attorney for Debt Dismissal who will help you in the process.

Therefore, it is very clear that debt settlement and debt dismissal are clearly different from each other. Debt dismissal is by far the better option if you can get it.

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