Should I File for Bankruptcy?
Bankruptcy vs debt relief, and what to do if you need more time.
Should I File for Bankruptcy or Look at Debt Relief?
Asking yourself whether to file can feel overwhelming. It is a big decision, and it is easy to get lost in how it feels instead of how it actually works.
Set the ethical and moral piece aside for a moment. Look at the options the same way you would any other major financial decision: the path, the risks, the cost, how long it takes, how long recovery takes, and the likely outcome. See the side-by-side comparison of all three paths.
Should I File Chapter 7?
The advantage of Chapter 7 is that it can lower your bills right away and resolve the unsecured debt problem.
People who file Chapter 7 generally begin to reestablish new unsecured credit within about two years of discharge. Chapter 7 is not nearly as hard to recover from as much of the debt-relief industry makes it sound. Read Credit After Bankruptcy for more on that.
You probably do not want to file. If you did, you would not be reading this. But if you have a significant amount of unsecured debt and you qualify for Chapter 7, you should take it seriously.
From a cost standpoint — and there are other things to weigh — Chapter 7 is often better than our service, and it is far better than a long-term debt settlement program. See why long-term settlement is riskier.
Chapter 7 can be hard to qualify for. If income or assets push you into Chapter 13, settlement can start to make sense. See the Chapter 13 page.
Should I File Chapter 13?
If you are in foreclosure, Chapter 13 may help save the home and can be the right tool.
Otherwise, a Chapter 13 means payments to a trustee for 3–5 years. About 40% receive a Chapter 13 discharge. Some convert and receive a Chapter 7 discharge instead. A lot of people who file Chapter 13 don't finish it, often because they can't keep up with the payments.
If a bankruptcy attorney tells you Chapter 13 is your only bankruptcy option, look at whether you have an asset you could use to settle. If you do, the Strauss Method — settling the accounts close together — may be a better fit than a Chapter 13. Compare the options in Debt Settlement vs Bankruptcy and see how the Strauss Method works.
The Most Direct Way to Avoid Bankruptcy
Generate enough funds to settle the delinquent accounts right away.
If you cannot settle all of them immediately, the next question is whether settling some and re-aging the rest (bringing pre-charge-off accounts current and paying them normally) lowers your monthly bills enough to solve the problem. Learn how a re-age works.
That approach can put you back in control, start the recovery clock, and avoid the lawsuit risk that comes with settling over years.
If You Cannot Settle Right Away
If the accounts are charged off and you need time to recover — but you want to avoid Chapter 13 and you do not want a 24–48 month settlement program — that is what our Payment Plan service is for. See the Payment Plan details.
We help you negotiate the smallest payment the collector will accept on the charged-off accounts so you can regain control, reduce collection pressure, and buy time. Once an account is charged off, interest and late fees often stop, so those payments go toward the principal.
This service includes 18 months of support. You pay the creditors directly. There is no upfront fee. Our fee is 5% of the balance, invoiced as the work is completed.
The point is not to stay in a payment plan forever. The point is to protect the accounts while you rebuild, then settle them simultaneously when you are in a stronger position. When you are ready to do that, we reduce the settlement fee to 15% of the savings. We do not recommend this service if you don't have a high degree of confidence that you will be able to settle the debts within that 18-month period. See more on the Payment Plan in the FAQ.
When a Payment Plan May Not Be the Right Next Step
If the accounts are not charged off yet, ask about hardship programs and re-ages first. Re-aging can bring those accounts current and may solve the monthly-budget problem without settlement or bankruptcy. See when credit counseling or a re-age fits.
If you qualify for Chapter 7 and the debt load is high, Chapter 7 is still often the cleaner, cheaper, faster path. A payment plan is the alternative when Chapter 7 is off the table and you need time before you can settle.
The goal is not to avoid bankruptcy at all costs. The goal is to pick the path with the least risk, the lowest cost, and the fastest real recovery.
Common Questions
Is Chapter 7 always the worst option?
No. If you qualify, Chapter 7 is usually faster than a 24–48 month settlement program, and the outcome is more certain. A typical case discharges in about four months. Most people can start rebuilding unsecured credit within about two years of discharge. FHA mortgage financing is generally available two years after discharge, and as soon as 12 months with documented extenuating circumstances. A long settlement plan often delays that start until the last account is resolved. See the full credit recovery timeline.
When does settlement make more sense than filing?
When you can settle the delinquent accounts quickly, in months rather than years, and the result costs less than a bankruptcy once fees, taxes, and lawsuit risk are included. If you cannot fund that, Chapter 7 is usually the cleaner path. See how the Strauss Method works.
What if I do not qualify for Chapter 7?
Chapter 13 is not the only remaining option. If the problem is unsecured debt and you can fund settlements quickly, settling the accounts can be the better path. If you cannot fund them yet, a payment plan on the charged-off accounts can buy time while you rebuild. See the Chapter 13 alternative.
Not sure which path fits?
Read our free 4-part educational series, or have Jared look over your accounts with you.