Compare options
Settlement is a private deal with each creditor. Bankruptcy is a federal court case with legal protection and a longer mark on your credit. Here is how Chapter 7, Chapter 13 and settlement compare, and when bankruptcy is the better road.
Who each option fits
Fits if
Watch out for
Fits if
Watch out for
Side by side
The same rows as our four-option comparison, split into the two kinds of personal bankruptcy, plus the three questions that often decide it: lawsuits, property and taxes.
| What we compare | What we do Debt settlement | Chapter 7 bankruptcy | Chapter 13 bankruptcy |
|---|---|---|---|
| What it is | We negotiate each debt down; you pay the settled amounts from an account in your name. | A court case. A trustee sells property that is not exempt, and most unsecured debt is discharged. | A court case. You repay what a court-approved plan requires, and the rest of the eligible debt is discharged. |
| What it costs | The settled amounts plus our fee, charged only after a settlement is reached and shown as its own line. Forgiven debt may be taxable. | Court fees of $335, plus an attorney. Fees can sometimes be paid in installments or waived. | Court fees of $310, plus an attorney and the plan payments. |
| How long | Most programs run 24 to 48 months. | Often a few months from filing to discharge. | A 3 or 5 year plan, set by your income. |
| Credit impact | Your score will drop during the program. | Can stay on your credit report for up to 10 years. | Can stay on your credit report for up to 10 years. |
| Lawsuits and collection | No court protection. Creditors can keep collecting and can sue. | An automatic stay stops most lawsuits, garnishments and collection calls. | The same automatic stay, and it can also protect a co-signer. |
| What you keep | No trustee sells anything, but a creditor who wins a lawsuit can seek to garnish wages. | Exempt property only. Each state sets its own exemptions. | Usually your property, including a home or car you keep paying for. |
| Tax on forgiven debt | Forgiven debt may be taxable income (Form 1099-C). | Debt discharged in bankruptcy is not taxable income. | Debt discharged in bankruptcy is not taxable income. |
If a debt management plan or bankruptcy fits you better, we will tell you so. Free nonprofit credit counseling is a good first call for many people, and we will point you there when it is.
Settlement is a private negotiation. You save into an account in your name, and each creditor is asked to accept less than the balance. No court is involved, which also means no court protects you: the CFPB warns (CFPB, opens in a new tab) that fees, credit damage and lawsuits are real risks.
Bankruptcy is a federal court case. The moment you file, an automatic stay (U.S. Courts, opens in a new tab) stops most collection actions, including lawsuits and wage garnishments. At the end, the court issues a discharge: an order that you no longer owe the debts it covers.
We are not attorneys and we do not give legal advice. This page is general information; a bankruptcy attorney can tell you what applies to you.
In Chapter 7 (U.S. Courts, opens in a new tab), a trustee sells property that your state does not protect and pays creditors from it. Each state decides which property is exempt, so ask an attorney what you would keep. A discharge usually comes a few months after filing.
In Chapter 13 (U.S. Courts, opens in a new tab), you keep your property and repay part of your debt through a court-approved plan. The plan lasts three years if your income is below your state median, and generally five years if it is above.
| At a glance | Chapter 7 | Chapter 13 |
|---|---|---|
| Best for | Low income, few assets to protect | Steady income, a home or car to keep |
| Length | A few months | 3 or 5 years |
| Court fees | $335 | $310 |
If your household income is above the median for your state and family size, the law applies a means test (U.S. Trustee Program (DOJ), opens in a new tab). It checks how much you could pay creditors after allowed expenses. If the answer is too much, the Chapter 7 case can be dismissed, and Chapter 13 becomes the option.
Every filer must also take a credit counseling course (U.S. Trustee Program (DOJ), opens in a new tab) from an approved agency before filing, and a debtor education course before the discharge.
The state median figures change during the year. The U.S. Trustee Program publishes the current ones on its means testing page.
Court fees are a few hundred dollars, but attorney fees come on top and vary, so ask for a written quote. Settlement costs the settled amounts plus our fee.
| On $20,000 | Debt settlement | Chapter 7 | Chapter 13 |
|---|---|---|---|
| You pay | $13,000 to $20,000, fee included | $335 in court fees, plus an attorney | $310 in court fees, an attorney, and what the plan requires |
| Over | About 27 months | A few months | 3 or 5 years |
| Tax on forgiven debt | May be taxable | Not taxable | Not taxable |
Settlement figures are illustrative2. Court fees are from U.S. Courts; attorney fees and plan payments vary by case.
Taxes can close the gap: the IRS (IRS, opens in a new tab) excludes debt canceled in bankruptcy from income, while debt forgiven in a settlement may be taxed.
Often, and we would rather say so than enroll you in a program that fails. Bankruptcy is usually the stronger option when:
If this list sounds like you, talk to a bankruptcy attorney before you enroll anywhere. U.S. Courts strongly recommends one.
Settlement does not cover student loans, mortgages, car payments, other secured loans and income tax debt. Bankruptcy does not discharge every debt either (U.S. Courts, opens in a new tab): most student loans, support payments and many tax debts usually remain.
Things you should know
Read these before you enroll anywhere, including with us. They apply to every debt settlement program.
Notes on the figures and claims above
Straight answers
Rather hear it from a person? 866-659-7966
It usually stays longer: a bankruptcy can be reported for up to 10 years, and late payments from settlement for up to 7. Both do real damage. Which recovers faster depends on what happens next.
You can, but it may spend money you will need for the case, and the timing of payments matters in bankruptcy. If bankruptcy is likely, talk to an attorney before you settle anything.
Not always. Each state protects certain property, and Chapter 13 is designed to let you keep property while you repay. An attorney can tell you what your state protects.
No. A creditor can still sue while you save, and settlement gives you no court protection. If you have been served, respond by the court deadline and talk to an attorney.
Because a program that fails costs you fees and time. We only earn a fee when we settle a debt you enrolled, and if bankruptcy fits you better, the honest answer is the useful one.
Where the facts on this page come from. Each link opens the original in a new tab.
Next step
Check your state and see an illustrative estimate, fee included. If bankruptcy looks like the better road, we will tell you so.
Four short steps
Your estimate first. Contact details last.
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