If you are unable to pay your bills, bankruptcy may be a better option for you than debt settlement. Debt settlement involves you negotiating agreements with your creditors to pay a small portion of what you owe. The company then forgives the remaining balance. However, the forgiven amounts are considered to be income by the IRS and are subject to taxes. This might leave you facing a large tax bill at the end of the year. 

While bankruptcy may remain on your credit for up to 10 years, the amounts that are discharged in bankruptcy are not considered to be taxable income. Depending on the type of bankruptcy that you file, most of your unsecured debts may be forgiven in as few as a couple of months, allowing you a fresh financial start.