Debt settlement vs. Bankruptcy—Pros and Cons

Written By Melissa Cook
Feb 7, 2022
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Filing for bankruptcy can often seem like the easier way out of unpayable debt. However, it has severe, long-term effects that are almost impossible to correct. Debt settlement, on the other hand, can be a more optimal solution for many—read on to find out the pros and cons of each option.

Debt settlement vs. Bankruptcy

First, let’s briefly touch on each term to fully understand what they stand for.

Bankruptcy is a legal proceeding carried out to allow individuals or businesses freedom from their debts, while simultaneously providing creditors an opportunity for repayment. While fully freeing a person, or entity from debt, bankruptcy leaves a mark on records that is close to indelible, even many years after the occasion.

Debt settlement, on the other hand, is essentially a course of negotiations done by professionals on behalf of a client with their creditors to partially relieve the owed amount at hand. While the outcome may vary, the relieved debt can reach up to half of the total outstanding balance. 

Now that everyone’s on the same page, let’s look at which solution you should actually choose. 

Bankruptcy: Pros and Cons

When it comes to filing for bankruptcy, a definite advantage is that it deletes almost all related outstanding debt, except government obligations, student loans, and child support and alimony obligations. That is, of course, if you file for liquidation bankruptcy under Chapter 7 of the U.S. Bankruptcy Code. This type is one of the most common of all for most individuals, along with Chapter 13’s repayment plan.

Chapter 7 liquidation is definitely the quicker option, as the process usually takes only around half a year at most, and both individuals and businesses can file for it. However, don’t be blinded by the way this sounds. Naturally, to discourage everyone from doing so, the event has one of the worst effects on financial status for up to 10 years after it’s finalized, making it extremely hard to qualify for any kind of credit thereafter. Also, all assets that fulfill certain criteria will be sold to lower the debt first. With all that said, it could still be a viable solution for those who simply cannot afford to make further payments at all.

A repayment plan under Chapter 13 could be an alternative for some. This type does not forgive outstanding debt, but rather establishes a new payment schedule for your debts, distributed throughout the upcoming three to five years. It does take longer than liquidation, however, it “only” stays on your report for seven years, and it can even fully stop an ongoing foreclosure, without the bankrupt person or business having to sell any assets.

Debt settlement: Pros and Cons

Serving as a sort of middle way, debt settlement’s benefit is that it combines the great characteristics of bankruptcy with possibly reduced long-term effects. The effects of debt settlement can stay on credit reports for up to seven years, and just like bankruptcy, it will negatively affect your credit score—however, its impact can be lowered in certain cases. Interestingly enough, the lower your credit score before beginning a debt settlement program, the lower its effects will be, and vice versa. 

How it typically works is professionals trained for such negotiations approach the clients’ creditors, and reach an agreement, which usually relieves a significant portion of the owed amount. Nevertheless, a disadvantage can be that the full balance is rarely forgiven, hence the client will have to repay some of their debt. 

Keep reading: What is extinguishment of debt?


If you’re struggling with your credit card or any unsecured debt, evaluating your options is never a bad idea. As there is nothing to lose, we’d highly recommend consulting with  Americor, to come up with a solution that is most suitable for your situation—just remember one thing: there’s always a way out. 

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About Americor

Americor provides debt solutions to thousands individuals and families all over the country. We’re a next-generation debt relief company with a proprietary platform designed to help clients get out of debt quickly. Together we’ll develop a strategy for you to enjoy a debt free lifestyle. Learn more about how Americor can help relieve the burdens of debt today.

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We provide debt resolution services. Our clients who make all monthly program payments save approximately 40 – 50% of their enrolled debt (average of 43%) upon successful program completion, before program fees. Fees are based on a percentage of your enrolled debt at the time of starting the program and range from 15%-25% of your enrolled debt. Programs range from 20-48 months. Clients must save at least 25% of each debt due to an enrolled creditor before a bona fide settlement offer will be made. On average, clients receive their first settlement within 4-7 months of enrollment and approximately every 3-6 months thereafter from when the prior debt was settled. Not all Clients complete the program. Estimates are based on prior results and may not match your results. We cannot guarantee that your debts will be resolved for a specific amount or percentage or within a specific timeframe. We do not assume your debts, make monthly payments to creditors or provide tax, bankruptcy, accounting, legal advice or credit repair services. Our program is not available in all states; fees may vary by state. Some programs may be offered through The Law Firm of Higbee & Associates d/b/a Advantage Law. The use of debt resolution services will likely adversely affect your credit. You may be subject to collections or lawsuits by creditors or collectors. Your outstanding debt may increase from the accrual of fees and interest. Any amount of debt forgiven by your creditors may be subject to income tax. Clients may withdraw from the program at any time without penalty and receive all funds from their dedicated account, other than funds earned by the company or fees paid to third-party service providers, as may be applicable. Read and understand all program materials prior to enrolling. Certain types of debts are not eligible for enrollment. Some creditors are not eligible for enrollment because they do not negotiate with debt relief companies. To determine the offers you may be eligible for, Americor conducts a “soft credit pull.” This credit pull does not impact your credit score, creditworthiness, or ability to obtain credit from other sources. The soft pull is not a tradeline entry, it does not report against your score and will only take a few minutes.

Americor Funding, LLC (18200 Von Karman Ave, 6th Floor Irvine, CA 92612) is fully accredited by the Better Business Bureau (BBB), the American Fair Credit Council (AFCC), and the International Association of Professional Debt Arbitrators (IAPDA). CA Department of Financial Protection and Innovation (DFPI) License # 603K913.

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