How is your credit?
If your credit is good, you may wish to avoid bankruptcy in order to preserve your good credit. If your credit is already in bad shape due to high balances, missed payments, late payments, foreclosure, etc., then bankruptcy may be a quicker, cheaper and better option. The catch is that many credit card companies will not agree to debt settlement until you are already 60-90 days late (meaning that your credit will likely already be severely damaged).
What income or assets can you devote to debt settlement?
Do you have a lump sum of cash that you can use or assets that you can sell in order to settle debts? Will you earn enough over the next few months to settle a large percentage of your debt? If the answer to both of these questions is "no," then bankruptcy is likely to be cheaper and easier than debt settlement. Creditors do not want to enter into long-term repayment arrangements and such arrangements often do not work out for consumers. If you are ineligible for Chapter 7 bankruptcy and do not have the financial ability to settle your debts quickly, you may wish to file a Chapter 13 bankruptcy to settle your debts over a longer period of time.
How many creditors do you have?
If you are trying to settle debts outside of bankruptcy, it is better to have a few large creditors than several small ones. It is much easier to settle two $25,000 accounts than to settle ten $5,000 accounts.
Do you have assets that would be "non-exempt" in bankruptcy?
You may wish to meet with a bankruptcy attorney in your state to see whether you can protect all of your assets in bankruptcy. If you have "non-exempt" assets that you wish to keep, then Chapter 7 bankruptcy may not be an option. Chapter 13 bankruptcy, which is a 3-5 year debt settlement plan, may still be available, but may be less desirable than non-bankruptcy debt settlement.
Are you willing to do it yourself or hire an attorney?
There are a lot of questionable "debt settlement" companies doing business. Many of these companies will have you pay them to settle your debts, then use your first several payments to pay their "fees," which often reach into the thousands of dollars, then fail to reach settlement with your creditors. If you wish to attempt to settle your debts outside of bankruptcy, you should either do it yourself, or hire a bankruptcy attorney. The reason for this is simple. If you do it yourself, you will not be paying anything "out of pocket" to settle debts. If you hire a bankruptcy attorney, your attorney will have a lot of credibility in explaining to creditors that if a settlement can not be reached, a bankruptcy notice will be forthcoming (it is useful to have a "stick" in any negotiation.) Many bankruptcy attorneys will agree to try non-bankruptcy debt settlement before filing a bankruptcy case on your behalf
Are you eligible for bankruptcy?
As mentioned above, it is very useful to mention bankruptcy as an option when negotiating with creditors. But you should first know where you stand. If you are eligible to file a Chapter 7 bankruptcy and protect all of your assets, then any settlement at all from you is better than $0, which is what your unsecured creditors would receive if you filed Chapter 7 bankruptcy. If you are not eligible for Chapter 7, but you are eligible for Chapter 13 bankruptcy, then you should consult with a bankruptcy attorney to determine how much you would need to pay through a Chapter 13 plan, then negotiate with your creditors with that number in mind.