What's better for credit card debt, bankruptcy or debt settlement?

Bankruptcy is generally considered the option of last resort because of its long-term negative impact on creditworthiness. A bankruptcy stays on your credit report for up to 10 years, and can affect your ability to get credit or insurance. Debt settlement is an option for unsecured debts like credit card debts. In a debt settlement, you negotiate with the creditor for:

• A lower balance/forgiveness of debt
• A reduced interest rate
• A reduced monthly payment
• Some or all of the above

First of all, you need to understand that debt settlement is not a court regulated process and the creditor is under no obligation to negotiate with you or accept you request for reduction of the debt.

In order for a debt settlement to work, you have to stop paying your bills for upwards of 18 months, so you'll be dealing with creditor lawsuits. You will likely also be liable to pay taxes on any "forgiven" debts.

Also you need money for a debt settlement. Settlements of debts will range between 25% and 70% on the dollar.  If you are able to negotiate a settlement you will need to forward the lump sum directly to the creditor. 

Do not expect any payment plans in the debt settlement process. Some credit card companies may offer a 10% reduction but that is it and lenders will not negotiate with you if you are current. If you have more than one credit card, you may find it difficult to handle all negotiations at the same time.

Depending on your situation, bankruptcy may be the better option for you especially if you do not have the cash to make a debt settlement work.

In either case, you will need to get a lawyer to help you out. If you choose debt settlement, then you will have to deal with lawsuits, and if you choose bankruptcy you'll want legal representation.

Talk to a Bankruptcy Lawyer to find out which option would be best for your situation.