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Should I File For Bankruptcy or Try Debt Relief?

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In a Nutshell

When a person can't pay their debts, creditors can become extremely demanding in their attempts to collect debts. In some cases, debt collectors may harass individuals to repay their debts. But if you don't have any money left over each month to pay your bills, you can't won't be able to pay the debt regardless of what a debt collector tells you.

Written by Jonathan Petts
Updated April 30, 2024

We understand how frustrating and frightening it can be when you find yourself with too much debt and no solution in sight. Many people struggle with debts they can’t pay each day and may not be aware of what their debt-relief options are. This article explains several debt-relief options, including filing bankruptcy. Read on to learn more about your options, so you can move forward toward a better financial future.

Why People Choose Between Debt Relief and Bankruptcy

When a person can’t pay their debts, creditors can become extremely demanding in their collection attempts. In some cases, debt collectors may harass individuals to pay their debts. Others may push you toward a specific debt relief option. But remember that their recommended debt relief option may not be in your best interest, especially if it deals with only a small part of your total debt.

Before you decide to use any debt relief program, carefully review all of your options to get out of debt. Some debt settlement programs could cause more problems if you're not careful. You should only make a decision about how to get out of debt after weighing the pros and cons of each debt relief option.

What's Better Chapter 7 Bankruptcy or Another Debt Relief Option?

Both Chapter 7 bankruptcy and other debt-relief options like credit counseling and debt settlement have pros and cons that you need to consider. For some individuals, filing Chapter 7 will be the best way to get rid of debt. But for others, another kind of debt management plan might be a better option.

There are several different types of debt relief. Many people base their decisions on how bad their situation is and if they think they can climb out of it. You'll also want to look at your short- and long-term financial goals. Let’s compare a Chapter 7 bankruptcy case to other debt-relief options to help you decide if filing Chapter 7 bankruptcy is a better option than other kinds of debt settlement plans.

A chart showing different options for debt relief by debt type.

What Is a Debt Consolidation Loan?

A debt collector may urge you to apply for a debt consolidation loan to catch up on your bills or repay old debts. With a debt consolidation loan, you roll all the debts you owe into one loan with one monthly payment. Having just one bill to focus on paying each month can be very helpful for some people.

Even though it might make your payments more manageable, a debt consolidation loan may not solve your debt problem. For many individuals, a debt consolidation loan places their property at risk and simply shifts debts they can’t afford to pay to another type of debt they can't afford to pay. 

After all, if making the minimum payments is a financial hardship before you enter into a debt settlement program, making a minimum payment on a debt consolidation loan only helps if the total amount you're paying per month is less than all of your minimum payments combined. Without first reducing your total debt amount or getting a lower interest rate, a debt consolidation loan may not move the needle at all when it comes to making your minimum payments.

Most lenders require that you use your property as collateral to get a debt consolidation loan. This means that your creditor can take — through repossession or foreclosure — the property you pledge if you miss a payment. Popular debt consolidation loans involve using a car or a home to secure the loan.

If you can't pay your unsecured creditors, those creditors can file a debt collection lawsuit. If you can't afford the payment on the debt consolidation loan, you could lose your home, your vehicles, or other assets you pledged as collateral for it. A Chapter 7 bankruptcy case can get rid of a debt collection lawsuit.

Should I Hire a Debt Consolidation Company To Help Me?

Instead of applying for a debt consolidation loan, some people hire a debt consolidation company. The debt consolidation company promises to negotiate with your creditors to lower your payments as part of a debt management plan. However, many of these companies don't tell you several important things about their services.

  • Some debt consolidation companies are expensive. A majority of your monthly payment may go to the debt consolidation company instead of your creditors. Sometimes the payments are structured in a way that you pay the debt relief company's upfront fees first, while your credit report gets hit with a missed payment notification every month. This drives down your credit score even while you're trying to settle your debts.

  • Your creditors aren't legally required to work with the company. Some creditors may refuse to negotiate a payment arrangement.

  • Creditors can cancel the agreement at any time. Sometimes creditors change their minds and decide to pursue other legal remedies to collect the debt, even if you're current on your payments to the debt consolidation company.

  • “Lowering” your payments often means more time in debt. By extending the term to repay the debt, you are paying more money in interest to the creditors, and it takes you much longer to get out of debt.

What Is Debt Settlement?

Another popular debt-relief option is debt settlement. To settle a debt, you negotiate with your creditors. You offer to pay a percentage of the debt as one lump sum instead of repaying the debt in full over time. If the creditor agrees to the settlement, it cancels the remaining debt.

Debt negotiations may appear to be a good idea. You can get out of debt for less than you owe to your creditors. But there are some drawbacks to debt settlement, including:

  • You must have a large sum of money available to pay the debts once the creditor agrees to the payment. Many people don’t have access to large sums of money without using their homes or other assets as collateral.

  • You might put your property at risk. As with a debt consolidation loan, you often transfer unsecured debts to secured debts. So, you’re risking your home if you can’t afford to pay the loan.

  • Your creditors aren't required to negotiate the debt. Some creditors might demand full payment, or they will pursue legal action.

  • You can still get sued. As with the debt consolidation company, you could do a lot of work and pay a lot of money only to have one or more creditors sue you for the full amount you owe.

  • It might increase your taxes. Negotiating your debt may increase your tax liability next year. When a creditor writes off bad debt, the creditor reports the debt to the IRS and sends you a 1099 form. You are required to report the debt as “income” on your tax return. Reporting the debt on your tax return could increase the amount of taxes you will owe next year.

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Is Chapter 7 Better Than Other Debt Relief Options?

Some people consider bankruptcy a last resort. But if you're really struggling financially and don't see a way out, it can be a great way to get a fresh start. Chapter 7 bankruptcy has the following advantages:

  • It usually takes less than six months. Chapter 7 can eliminate most of your debts within four to six months without any payments to the creditors.

  • It stops creditors' collection efforts. Creditors must obey bankruptcy laws. They can’t continue collection efforts after you file your Chapter 7 petition without court approval. This means all the phone calls have to stop!

  • After the bankruptcy discharge, collections and harassment will stop permanently. Creditors aren't permitted to try to collect discharged debts. They can face severe penalties for violating the discharge order.

  • It stops wage garnishment. A Chapter 7 bankruptcy case stops wage garnishment, debt collection lawsuits, and other forms of debt collection.

  • It erases deficiency judgments. If you choose to surrender your car or house because you can't afford the payments, a creditor can't get a deficiency judgment against you. And if you already have a deficiency judgment against you, the Chapter 7 case discharges the debt.

  • It doesn’t have to be expensive. Your costs for filing a Chapter 7 case may be very low if you’re eligible to use Upsolve’s free bankruptcy filing tool and file bankruptcy without a lawyer. 

Trying to figure out the best timing for a Chapter 7 filing? This can help:

Infographic explaining the major factors to consider regarding the timing of filing Chapter 7 bankruptcy.

What Is Chapter 7 Bankruptcy?

Chapter 7 of the Bankruptcy Code is referred to as the “liquidation” chapter of bankruptcy. This is because a Chapter 7 trustee can sell some property to pay debts. Instead of proposing a bankruptcy repayment plan as required in Chapter 13 bankruptcy, the filer surrenders any property that can’t be protected by the bankruptcy exemptions to the bankruptcy estate.

That said, federal or state bankruptcy exemptions protect most of your day-to-day property. Exempt property can’t be used to pay your creditors. That’s why most Chapter 7 cases filed in the United States are no-asset Chapter 7 cases.[1] In a no-asset case, the debtor keeps all of their property while getting a fresh start by becoming debt-free. No-asset cases that don’t require a full means test analysis can be done on your own through a free bankruptcy nonprofit, Upsolve, or with the help of a legal aid attorney.

What Debts Are Discharged in Chapter 7?

Most unsecured debts are eligible for a discharge under Chapter 7. Examples of unsecured debts that you can discharge in a Chapter 7 case include:

  • Credit card debts

  • Personal loans

  • Medical bills and expenses

  • Personal judgments

  • Old utility, rent, and lease payments

What Happens to Student Loans in Bankruptcy?

Federal student loan debt can be discharged through bankruptcy, but many people say it can't. Why? Student loan debt is treated differently than other unsecured debt. To have your student loans discharged, you'll have to file an adversary proceeding (AP) after you file your bankruptcy petition. During the AP, you must prove that you meet what's called an undue hardship standard.

The Department of Justice released new guidance for bankruptcy courts in late 2022 that helps judges interpret the undue hardship standard more uniformly. Since then it's gotten easier to discharge some student loans — specifically federal student loans. You can try to get your private student loans discharged, too, but the AP process will be more complicated.

Some unsecured debts aren't eligible for a discharge though. For example, student loans aren't dischargeable unless the debtor qualifies for a hardship discharge of the student loans. Most income taxes, as well as alimony, and child support payments also aren't dischargeable. You can’t get out of paying your domestic support payments by filing a Chapter 7 bankruptcy case.

What Happens to Secured Debts?

Creditors who have collateral to secure their debts are referred to as secured creditors. You must continue to pay secured debts to keep the property. That means that if you want to keep your home or car, you must pay the loan payments even though you file a Chapter 7 case. But if you want to surrender the collateral, you can do so without fear of a deficiency judgment.

I Want To File Chapter 7, But I Can’t Afford To Pay a Bankruptcy Attorney

Bankruptcy attorneys help people file for bankruptcy relief to get out of debt. Unfortunately, some people can’t afford to pay the average cost to hire a Chapter 7 attorney. Though that's discouraging, the good news is that you aren't required by law to hire a lawyer to file a bankruptcy case. So, even though you may not be able to afford a Chapter 7 attorney, you may still be able to file Chapter 7 to get out of debt quickly.

You Can File Chapter 7 Bankruptcy Without an Attorney!

Upsolve developed a free filing tool that empowers you to complete your bankruptcy forms without the help of a bankruptcy lawyer. Watch videos of people who have used our services in the past to file a Chapter 7 case.

We make the process of filing a Chapter 7 case as easy for you as possible. Our unique bankruptcy software guides you through the process of qualifying for Chapter 7, completing your Chapter 7 forms, and filing your Chapter 7 case with the Bankruptcy Court. You don’t need to struggle with debts for another day without help. You can charge and deal with your overwhelming debt by filing bankruptcy without a lawyer.

Choosing a Debt Relief Option That's Right for You

As we discussed above, there are several debt options that you can explore, including filing a Chapter 7 bankruptcy case, consolidating your debts by borrowing money, using a debt consolidation company, or negotiating a one-time lump sum payment. You can find more information in our Learning Center. If you meet the income requirements, a Chapter 7 case may be the best way for you to get out of debt. If you’re still unsure, schedule a free consultation with a bankruptcy lawyer in your area. They can give you legal advice on which debt relief option best suits your financial situation. 


  1. American Bankruptcy Institute. (2002). Bankruptcy by the Numbers - Chapter 7 Asset Cases. ABI Journal. Retrieved August 4, 2020, from

Written By:

Jonathan Petts


Jonathan Petts has over 10 years of experience in bankruptcy and is co-founder and CEO of Upsolve. Attorney Petts has an LLM in Bankruptcy from St. John's University, clerked for two federal bankruptcy judges, and worked at two top New York City law firms specializing in bankrupt... read more about Jonathan Petts

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