Bankruptcy vs. Debt Consolidation
By Guest Author Andy Masaki
Bankruptcy can seem to be the best option if you are finding it increasingly hard to go on with the payments. However, the problem here is that very few people are aware of the other debt relief options and believe that bankruptcy provides the ultimate relief. On the other hand, debt consolidation helps you in doing away with the high interest rate as it gets revised. Moreover, it helps with becoming debt free soon enough. Therefore, it is important for you to consider the points involved with bankruptcy vs debt consolidation.
Which should you opt for?
Determining if you should opt for debt consolidation or bankruptcy will depend on various factors. While one option may seem to be helpful for one, the same may not be helpful enough for another. However, the main factor which will have to be considered is the amount of debt owed and the type of debts owed along with the financial situation you are in.
In case you are finding it hard day by day to handle all of your expenses along with the debt payments to be made and if the lender is threatening to foreclose on your property, it would be better to file bankruptcy. If you are sure that there is no option which can bring in the funds for mortgage payment, it is better to file bankruptcy. Moreover, if you want to retain your home you will have to file under Chapter 13. In case of Chapter 7 bankruptcy, you will have to avoid including the mortgage in the bankruptcy program and continue making the timely payments.
On the other hand, if you have been considering bankruptcy but are not sure start re-considering the situation you are in. For, although bankruptcy provides a fresh start, it has a huge negative effect on your credit. Therefore, it is extremely important for you to make sure that none of the other debt relief options could have gotten you out of the situation, debt consolidation for example, is quite a helpful option. That is mainly because with consolidation, you get to revise the interest rate and roll over the debts as one.
Difference between bankruptcy and consolidation
Understanding the difference between debt consolidation and bankruptcy is an important part of the determination process. So, here is a list of the differences:
- In general, debt consolidation does not hurt your credit score but bankruptcy does. It lowers your credit score by 200 to 350 points
- Debt consolidation is not a legal process whereas bankruptcy is a legal process and so creditors are bound to agree to the terms of the bankruptcy
- The interest goes on to accrue if you opt to consolidate your debts, whereas in case of bankruptcy the interest stops accruing with the immediate stay order
- With debt consolidation none of the debts get discharged, but in bankruptcy some of the debts may get discharged depending on your financial situation
- Anybody can consolidate their debts, but not all can file bankruptcy as there are some eligibility
criteria - You can get help through the bankruptcy trustee if you file bankruptcy. There’s no such trustee in case of consolidation
So, this is how you will have to decide if you should opt to consolidate debts or if you should file bankruptcy. If you are sure that it would be possible to pay down the debts after consolidation, it would be better for you to avoid filing bankruptcy. If there are debts which have too high rate of interest and if there are no other additional problem, you can consolidate debts. However, if your credit is already dinged and if there is no way out of the debt problem, you will have to file bankruptcy. However yes, you will have to keep in mind that after bankruptcy and the discharge, it would not be possible for you to obtain new credit in a couple of years. When you file bankruptcy, it gets listed on your credit report for 7 to 10 years. Furthermore, you will have to work hard so as to improve your credit. For, without good credit rating it may never be possible for you to obtain credit in any form.
Disclaimer: the views and opinions expressed in this post are those of the Guest Author. Sacramento Law Group is not responsible for the information contained in this post. The information contained in this website is not legal advice and is for general informational purposes only.