The Brown Law Firm — Jerome A. Brown, Board Certified Attorney in Consumer Bankruptcy Law and Business Bankruptcy Law by the Texas Board of Legal Specialization — 40+ Years Legal Experience

Compare Your Options

Before You Pay a Debt Relief Company, Compare the Full Cost.

A debt relief company may know its own program. A bankruptcy attorney evaluates your legal options.

If you have been told that bankruptcy is nearly impossible to qualify for, or that it will necessarily cost far more than a debt relief program, get the facts before making a decision. Every financial situation is different. Here is how debt settlement programs compare to filing bankruptcy with the help of an attorney.

Side by side

Who evaluates your options?

Debt Settlement Program

A debt relief company is typically not a law firm, and its representatives are usually not qualified to determine your legal eligibility for bankruptcy. They are evaluating whether you fit their program, not whether bankruptcy law fits your circumstances.

Bankruptcy with an Attorney

A bankruptcy attorney evaluates your income, expenses, assets, debts, exemptions, and circumstances under federal bankruptcy law to determine the options actually available to you.

Can creditors still sue you?

Debt Settlement Program

Yes. Creditors are under no obligation to participate in a settlement program. They can file or continue collection lawsuits while you save money for settlements.

Bankruptcy with an Attorney

No. Filing bankruptcy triggers the automatic stay, which stops most collection lawsuits, garnishments, and other collection actions, subject to limited exceptions.

What happens to your credit?

Debt Settlement Program

Many programs rely on accounts becoming or staying delinquent while settlement funds accumulate. Late payments, charge-offs, and collections can continue and may keep your score low for years.

Bankruptcy with an Attorney

Bankruptcy is a significant negative item, but it creates a defined point from which rebuilding can begin. Depending on your starting credit profile, recovery may begin well before the bankruptcy itself falls off your credit report.

Could forgiven debt create taxes?

Debt Settlement Program

Yes, potentially. When a creditor forgives part of a debt, the canceled amount is generally treated as taxable income unless an IRS exception applies, such as insolvency. A creditor may issue a Form 1099-C for canceled debt.

Bankruptcy with an Attorney

No. Debt that is discharged in bankruptcy is generally excluded from taxable income under federal law.

When can rebuilding begin?

Debt Settlement Program

Rebuilding is delayed while delinquent accounts, collections, and possible lawsuits continue throughout a program that can last years.

Bankruptcy with an Attorney

Rebuilding can begin once your case concludes and you focus on good financial habits after discharge.

What does it really cost?

Debt Settlement Program

Debt settlement companies commonly charge approximately 15% to 25% of the debt enrolled in the program, in addition to the money paid to creditors. Interest and late fees may continue growing while accounts remain unpaid.

Bankruptcy with an Attorney

Attorney fees vary by case and chapter. Court filing fees are currently $338 for Chapter 7 and $313 for Chapter 13. Ask for the total expected cost for your case before assuming bankruptcy costs more.

A real-world example

Based on $50,000 of enrolled debt, a 15% fee is $7,500, a 20% fee is $10,000, and a 25% fee is $12,500 in potential company fees, in addition to what you pay creditors to settle the debts themselves.

Those figures do not include interest, late fees, collection costs, or potential tax consequences.

$7,500

15% fee

$10,000

20% fee

$12,500

25% fee

Told you probably will not qualify for bankruptcy?

Do not assume that is true. Chapter 7 has eligibility requirements, including a means test for many consumer debtors whose income exceeds the applicable state median. But being above the median does not automatically mean you cannot file, and when Chapter 7 does not fit, Chapter 13 may provide another path to relief.

Being told that bankruptcy will be hard to qualify for is not the same thing as receiving a legal evaluation of your eligibility. Your eligibility can depend on much more than income alone, including household size, allowable expenses, the nature of your debts, your assets, available exemptions, and prior filings.

A debt relief salesperson does not determine whether you qualify for bankruptcy. Federal law does.

Related reading

Not sure which path fits your situation?

Sometimes bankruptcy is the better option. Sometimes it is not. You deserve to make that decision after comparing the actual numbers, legal protections, risks, and likely shape of each option, not based on fear of bankruptcy.

Jerome A. Brown is Board Certified in both Consumer Bankruptcy Law and Business Bankruptcy Law by the Texas Board of Legal Specialization, with more than 40 years of experience helping Texans find relief. He will review your situation personally and give you a straight answer about which path actually fits.

Free Initial Consultation

Serving Victoria and the Austin metro.

This information is educational information only, not legal advice. Bankruptcy eligibility and outcomes depend on individual circumstances.