I often sit with my clients in Tampa, Florida and perform a simple test: I make two columns on a piece of paper and list the pros and cons of filing bankruptcy versus trying to settle their debt.
More often than not, the bankruptcy column has many more pros, while the debt settlement column has more cons. For instance, in a Chapter 13, the monthly payment is usually much less. In a Chapter 7, the monthly payment is zero if there is no disposable income.
Debt settlement on the other hand usually requires the client have lump sum amounts available to offer to get any kind of substantial reduction. So they have to save up. The client has to reach satisfactory agreements with each creditor, or they still have leftover debt. Finally, in debt settlements the cancelled debt is taxable by the IRS. Not so in bankruptcy.
Debt settlements can take years - usually five or more unless you have a big chunk of money available right now. A Chapter 7 bankruptcy lasts 3 months start to finish. Faster than traffic court I'm told. Even a Chapter 13 bankruptcy is only three years if your income is below the median for your state and family size. On the other hand if you have non-exempt assets (such as a second home with equity, a paid off boat) or a $100,000 annual income, bankruptcy may not be the recommended choice.
Creditors do not view debt settlement any differently than bankruptcy for the most part. They both hurt your credit score obviously. However, since a bankruptcy clears your debt, clients can recover faster for the most part.
One other big advantage of bankruptcy versus debt settlement, the endless phone calls stop. Threats of or actual lawsuits stop. Make a consultation with a bankruptcy lawyer in your area today and do your own pros and cons comparison.