Debt relief comes in many different forms. The option that will appeal most to you depends on your ability to repay your current debt. One option for debt relief is declaring bankruptcy. Another option is to go with a debt consolidation. Each comes with advantages and disadvantages that need to be fully considered. Let us take a look at Bankruptcy versus Debt Consolidation for your debts.
An Overview Of Bankruptcy
Filing for bankruptcy means you are asking a court for protection from creditors. Your creditors may have threatened to take your home, seize money from your bank account, garnish your wages or take other action to get any money owed to them.
Asking a bankruptcy court for protection will exempt certain assets from being taken. Physical items such as your house and car will be exempted to a certain extent. Other assets such as a retirement account may also be exempt from any calculations used to determine your total assets.
Chapter 7 Vs Chapter 13 Bankruptcy
Chapter 7 bankruptcy is a method of liquidating your goods to pay off debts. Say you owe a debt of $10,000 to your creditors. A trustee of the court will sell as many non-exempt items as possible. That money will then go to your creditors. Whatever is left over will be forgiven.
Chapter 13 bankruptcy simply says you will continue to make payments to your creditors despite being declared bankrupt. The advantage to bankruptcy in this case is your ability to protect assets from creditors who are owed money. It is a good way to go if you have a lot of secured debt.
Most courts will demand a Chapter 13 filing unless you can demonstrate a severe hardship. Those who cannot file a Chapter 7 bankruptcy may find it advantageous to go with debt consolidation. Paying off a Chapter 13 bankruptcy can take as many as five years.
You can thank the major credit card banks for forcing consumers into credit counseling before heading into bankruptcy court. Plus the fact that you will most likely be forced into Chapter 13 instead of Chapter 7 makes it a less attractive option.
Not to mention that your job opportunities may be limited due to your public record showing a bankruptcy filing. There are many more reasons not to choose bankruptcy than reasons to.
An Overview Of Debt Consolidation
Debt consolidation involves asking your creditors to lower your monthly payments. Generally, your interest rate will be lowered due to a debt consolidation. Your principal balance may be lowered as well if you can negotiate a settlement offer.
You are able to consolidate any unsecured debts you have. You can use a debt relief company or take steps on your own. Keep in mind that consolidation can have a short term negative effect on your credit scores just as a bankruptcy filing will have on your credit report.
Most debt consolidation plans are paid off in no more than four years. This means you will be out of a debt a year sooner when you consolidate. Consolidations also don’t require you to turn over all financial records to your creditors.
Any notes regarding your debt consolidation are removed when the debt is paid. A bankruptcy will stay on your credit report for as many as seven years no matter what you do. This is a major advantage to anyone who is worried about applying for loans in the future.
How Do I Decide My Best Option?
Filing for bankruptcy is a good idea if you have assets you wish to protect. Your home, car and retirement account are all necessary items. Bankruptcy is also a good idea if you are not concerned about your credit score for the next decade. In other words, declare bankruptcy if you are looking for an organized way to start over again with your debt.
Debt consolidation is best for those who still have some ability to pay. Consolidating your debt will get you out of debt much faster as well. You also avoid opening your entire life to your creditors. Bankruptcy proceedings involve releasing tax returns, bank statements and other sensitive information. All you have to do to consolidate your debt is simply look for and hire and debt consolidation organization and have them do all the work for you.
Choosing your best debt relief option can be a tough decision. There are many factors that you have to consider before doing so. However, having a professional help you weigh your options can be a big help. Call today to speak with a representative who can show you the advantages of debt consolidation. Get your free debt consolidation quote with no obligation and learn why you should try to avoid bankruptcy at all costs.