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Can I File Bankruptcy if I’m in a Debt Relief Program?

2 minute read Upsolve is a nonprofit tool that helps you file bankruptcy for free. Think TurboTax for bankruptcy. Get free education, customer support, and community. Featured in Forbes 4x and funded by institutions like Harvard University so we'll never ask you for a credit card. Explore our free tool

In a Nutshell

Yes, you can absolutely file for bankruptcy relief even after attempting to work things out through an alternative debt relief program. Once your bankruptcy case is filed, you can stop making the payments under the debt relief plan you’re in (if you haven’t already) and your obligation to pay the debt will be eliminated for good when your discharge is entered. Continue reading to learn more about how the different debt relief options can impact your bankruptcy case.

Written by Attorney Andrea Wimmer
Updated November 26, 2021

Filing for bankruptcy protection is a big step, and not everyone is ready to jump right into the process without first trying different ways to deal with their debt. Debt consolidation, debt settlement, and debt management plans are common non-bankruptcy options for folks who want to avoid filing Chapter 7 bankruptcy.

Can I file bankruptcy if I’ve been trying debt settlement? 

Debt settlement is informal - something you work on with each one of your creditors individually. Because of that, it’s not uncommon that folks who try to settle their debts end up filing bankruptcy. Filing Chapter 7 bankruptcy will relieve you of any obligations you have to pay your debts, whether that’s under the original loan terms or the terms of your settlement agreement. 

If you successfully settled one or more accounts before filing bankruptcy and paid more than $600 to a creditor in the 90 days before the bankruptcy case is filed, the bankruptcy trustee can recover (get back) the funds. This is called a preference avoidance action by the trustee. 

You remain protected by the automatic stay and your obligation to pay this debt will be  discharged as part of your Chapter 7 bankruptcy. A preference avoidance just means that the funds you paid to this creditor will be divvied up among your other unsecured creditors

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Can I file bankruptcy if I’m in a debt management plan?

Your credit counselor may have recommended that you try a debt management plan in order to avoid a bankruptcy filing. A debt management plan is based on an agreement between you and your creditors, who will work with your credit counselor to create a plan for paying off your debts. Not all debts can be included in  a debt management plan. If you’re in a DMP and you can’t afford to continue making the payments you agreed to make as part of the plan, you can file bankruptcy to get immediate and lasting debt relief. If your total payments to a single creditor in the 90 days before filing exceed $600, the trustee can still recover these funds. But, as with a bankruptcy following a debt settlement, your obligation to pay the debts will still be discharged. Once your bankruptcy petition has been filed, you will no longer have to make your monthly DMP payments.

Can I file bankruptcy if I consolidated my debts?

Debt consolidation is a popular way for folks to try and get out of the financial hole they find themselves in. This is especially true as folks with a high debt load often end up getting multiple offers for consolidation loans or balance transfers in the mail every week. 

In a typical debt consolidation, you get a new loan from Bank Z to pay off your other debts owed to Banks A, B, C, and D. That means Banks A, B, C, and D are paid off in full, by Bank Z. If you know that you won’t be able to afford the payment on the consolidation loan, you should not get one and explore your bankruptcy options instead. Otherwise, you’re just prolonging the inevitable. 

Of course, there is nothing wrong with filing for bankruptcy protection after trying to get out of debt using debt consolidation. Things change and the best terms for a consolidation loan won’t help if your income changes and you can’t afford to make the monthly payments anymore. Just be careful not to file your bankruptcy case too soon after consolidating your debts. 

If you file bankruptcy shortly after consolidating your debts with a new loan,  Bank Z has the right to object to the discharge of your debt. After all, they just paid off all of your debts and wouldn’t have given you the loan to pay off all of your debts if they knew you were about to file for Chapter 7 bankruptcy.  You can’t incur new debt knowing that you’ll be filing bankruptcy soon. That is a version of bankruptcy fraud and you won’t be able to eliminate your liability on the debt.


Yes, you can absolutely file for bankruptcy relief even after attempting to work things out through an alternative debt relief program. Once your bankruptcy case is filed, you can stop making the payments under the debt relief plan you’re in (if you haven’t already) and your obligation to pay the debt will be eliminated for good when your discharge is entered. 

Written By:

Attorney Andrea Wimmer


Andrea practiced exclusively as a bankruptcy attorney in consumer Chapter 7 and Chapter 13 cases for more than 10 years before joining Upsolve, first as a contributing writer and editor and ultimately joining the team as Managing Editor. While in private practice, Andrea handled... read more about Attorney Andrea Wimmer

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Upsolve is a 501(c)(3) nonprofit that started in 2016. Our mission is to help low-income families who cannot afford lawyers file bankruptcy for free, using an online web app. Our team includes lawyers, engineers, and judges. We have world-class funders that include the U.S. government, former Google CEO Eric Schmidt, and leading foundations. It's one of the greatest civil rights injustices of our time that low-income families can't access their basic rights when they can't afford to pay for help. Combining direct services and advocacy, we're fighting this injustice.

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