While there are circumstances where debt settlement may make sense, in most circumstances personal bankruptcy has more advantages. For example, in most chapter 7 bankruptcies, nothing is paid to unsecured creditors. In addition, individuals in New Jersey and Pennsylvania can use either federal exemptions or state exemptions to protect their assets, typically not losing any in the Chapter 7 Bankruptcy. With debt negotiation, there is still a payment made to the creditors even if they agree to reduce their claim. In addition, typically if a debt is compromised outside of bankruptcy, a tax liability can result. For example, if a credit card company accepts $4500.00 on a $10,000.00 claim, the company will issue a 1099c for the $5500.00 that they have forgiven and that will count as income. With bankruptcy harassing letters and phone calls immediately stop. In many instances income taxes more than 3 years old can be eliminated in a bankruptcy. The bankruptcy is generally resolved quicker than debt negotiation and as a result you can begin to rebuild credit sooner. You should discuss with an experienced attorney each of these options to determine which makes the most sense for you.