Answer: -If you can pay it off then you should do so but make sure that you call the creditors and get a letter in writing stating they will either remove the negative account all together or remove the late payments. This is very easy to do with collections agencies- and they take settlements easier as well. Make sure you get it in writing or you will not have any ground to stand on if they do not do as they say they will. If they simply sage they will re-age your account that is not helping you, your account will just be updated to show you paid a past due account- not helpful but creditors assume consumers don't know any better. The BK laws are getting harder and it does last for 10 years - sometimes longer on your report. The faster you pay them off and get them updated the better. Once you have done all or most of that buy a copy of your own credit report with the scores, make sure everything is there and accurate- if not dispute it. When it comes to buying a home- yes credit is important but you also have to have a steady provable income to show you can afford to buy what you want, a good rental payment history helps, and a good debt to income ratio- keep your debts below 30% of what you make. If you find after all your work the score is still low try a mortgage broker not a bank. Mortgage brokers can acess what is called B and C lenders- they are more leinient than banks. You may pay a higher interest rate but make sure you can re-finance in 2 years when your credit is in better condition for a better rate.Oh yeah and you will have horrible credit with a BK, if your score is not below say 400 don't even consider BK- just pay what you owe. -You could file bankruptcy and in 36mos be able to finance a house maybe sooner, if you try to pay off your debt with the cost of living so high now you will end up just getting in more debt. Go for the bankruptcy .