what are the differences between filing for bankruptcy and using a debt settlement company

It's all a matter of opinion, as there is no "hard data" to truly indicate whether you will fare better in the long-run from one or the other. In my (humble) opinion having handled bankruptcies for years, there isn't a great difference, as each can negatively impact your credit rating. However, I have seen some differences, namely: if you do credit counseling, that doesn't necessarily deter creditors from calling you, and your credit can continue to be damaged until you complete the program. On the other hand, if you file for bankruptcy protection, note you can only do this once every eight years (under the new law), but once your petition is filed, the creditors' calls tend to stop, and rebuilding credit is slightly easier since you tend to get through it faster. All of this depends on the particular debtor. There are situations where the amount of debt simply isn't enough to justify bankruptcy and others where credit counseling would drag a situation out interminably. Thus, as to your specific situation, it is best to sit down with a seasoned bankruptcy attorney to determine your alternatives and best course of conduct.

Both will damage your credit. When you file bankruptcy as a consumer you would typically file either a chapter 7 which is a full discharge or a chapter 13 which is a repayment plan. Bankruptcy is a better option than debt settlement when you are being sued and have assets and/or income that you need to protect from attachment or garnishment. Bankruptcy offers you the protection of the court and stops the creditors from further collection. Debt Settlement is a good option when you have less than the full balance available to pay a debt that is 4 or more months delinquent. Your credit report will reflect that the account has been settled and if the amount of debt the creditor forgives exceeds $600 you will be responsible to pay income tax on the amount of the write off. To determine which option may be best in your particular circumstance your budget, assets, debts and risk need to be evaluated.

Seek real advice from an experienced CPA or tax attorney before you decide to pay a collection agency pennies on the dollar. It will be money well spent.

Both will impact your credit score negatively. (Yes, paying a debt collector will lower your scores.) You should not base decision on any modest differences in your credit scores.