Honestly, I cannot think of any situation where working with a credit counseling agency would be better than filing bankruptcy.  I would suggest pursuing that route if you are unable to file bankruptcy and your only alternative is to work through your debt issues.  If you can’t qualify for bankruptcy, then perhaps working with one of these credit counseling/debt reduction agencies might be a viable alternative.  Otherwise, I cannot honestly state I am aware of a situation where that would be better.

One reason people try to work with debt negotiation companies is that they believe it is better for their credit than filing for bankruptcy.  However, the credit rating companies still look at your need to use a credit counseling agency as evidence of your inability to pay your debt, just as a bankruptcy signals that inability.  Therefore there is likely no benefit to your credit for using a credit counseling agency as opposed to filing for bankruptcy.

Also, you must understand that most, if not all, of these credit counseling agencies are paid by credit card companies.  That is, they get paid a certain percentage of every dollar they get you to pay to the credit card companies.