Debt Settlement vs Bankruptcy I do not want to file bankruptcy, however which will heal credit faster?

Asked over 2 years ago - Overland Park, KS

I have a large amount a credit card debt that I need to get rid of, which will let me repair my credit faster, debt settlement or bankruptcy?

In total I have about $13k - $15K in credit card debt, one was turned over to collections, and another is still with company until end of the week. I need to do something soon, but I don't know what to do. Is debt settlement or bankruptcy better for repairing my credit rating? Could a bankruptcy lawyer help me with either of these?

Attorney answers (6)

  1. Patrick Begley

    Contributor Level 14

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    Lawyers agree

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    Answered . For a good portion of our clients who file a Chapter 7 and who have bad credit rating going into a bankruptcy, the credit reports we run generally estimate a 12-month IMPROVEMENT in credit scores. A bankruptcy would only leave you off notably worse if you had an absolutely perfect credit score, which with 13-15K dollars in debt, you don't. If you are doing a Ch 7, 3-4 months after you file and get your discharge you will be getting credit card offers which will allow you to start rebuilding your credit.

    There are a lot of advantages to bankruptcy vs. debt settlement. One is that bankruptcy is mandatory for creditors to participate in, debt settlement is not. Bankruptcy stops all pending litigation against you, debt settlement does not. If a creditor drops the amount you have to pay, the IRS could consider that income for that year and tax you on it. Forgiven debt in a bankruptcy and is not taxable income. Bankruptcy is supervised by a Federal court, a lot of debt settlement outfits are shady operations. Bankruptcy can be a much better option than debt settlement.

    Talk to a local bankruptcy attorney and give them all of the facts, they can truly help you get a handle on whether or not filing bankruptcy is in your best interest.

    The information provided in this post is not "legal advice." Rather it is general information on common legal... more
  2. Marc Gregory Wagman

    Contributor Level 17

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    Lawyers agree

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    Answered . Generally, debt settlement will hurt your credit as much or more than a bankruptcy. For you to settle debts for less than you owe you will need to let the credit cards go behind. This destroys your credit score. Further, a creditor can sue on the debts owed and don't have to agree to debt settlement. In bankruptcy you discharge the debts and while it will hurt your credit rating, it will not hurt it forever. There are also tax implications to debt settlement. Speak with a bankruptcy attorney who will go through both options. If you do do debt settlement look up the company's reputation on the internet. Many have significant complaints and bad reputations. The FTC recently cracked down on debt settlement companies because they promise the world and deliver little or nothing.

    The response given is not intended to create, nor does it create an ongoing duty to respond to questions. The... more
  3. David Prelle Eron

    Contributor Level 12

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    Lawyer agrees

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    Answered . Call Cynthia Grimes in Lenexa. She is an excellent attorney and can assist you.

    This response is anecdotal in nature and intended only as a general background on the particular matter. I DO NOT... more
  4. Geoffrey Marc Khotim

    Contributor Level 9

    2

    Lawyers agree

    Answered . My advice is that if you qualify for a Chapter 7 bankruptcy, your credit rating should not be a meaningful factor in your decision to file. At the end of the day, your credit rating is destroyed either way. However, filing for bankruptcy will often produce better credit rating results in just a few years than debt settlement.

  5. Eric Charles Lewis

    Contributor Level 18

    2

    Lawyers agree

    Answered . As a rule of thumb, once you have collections and are trying to "settle" debt, your credit worthiness cannot get worse and certainly bankruptcy is the quickest way to turn things around because after the discharge, you can get extensions of credit and begin rebuilding your credit. Without bankruptcy, nobody is going to lend you credit anytime soon.

    Advice on this forum is for informational purposes only and should never be mistaken as a substitute for legal... more
  6. Daniel Tam

    Pro

    Contributor Level 16

    Answered . Please don't use a debt settlement company. Consult the Kansas Office of the Banking Commissioner and the AG. They will tell you how those companies have wreaked havoc in the lives of Kansas consumers. Try to settle the debts yourself or simply meet with a bankruptcy attorney just to hear your options. Many bk attorneys give free initial consultations with no further obligation.

Related Topics

Bankruptcy

Bankruptcy is a legal way for people or businesses who are no longer capable of paying back their bills to clear these debts and start over.

Credit score

A credit score is a number calculated using a system to predict the likelihood that a person will pay his or her debts. This affects how much you can borrow.

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