Bankruptcy or Debt Consolidation?

Are you in debt up to your neck and you finally find yourself unable to pay the bills anymore? If yes, then you are probably already considering either of the options – bankruptcy or debt consolidation. And probably, the TV ads are telling you that both declaring bankruptcy and debt consolidation are easy and efficient way to solve your financial problems. If we take a superficial look at both things, debt consolidation seems like a better solution rather than bankruptcy, but there are pros and cons to both approaches. Bankruptcy is not a dead end to your life, you know. However, it does bring some essential changes, most of them are not positive.

Let’s see the facts about debt consolidation. A debt consolidation program (also called debt management) implies signing a contract with a debt consolidation agency. Financial advisors then negotiate on your behalf with your creditors in order to work out a repayment plan with lower interest rates and lower monthly payments. Plus, it will put an end to the harassing phone calls from your creditors.

There are some significant advantages to the debt consolidation, other than lower interest rates and monthly payments. Instead of multiple payments to numerous creditors you will only have to make one payment every month. Most creditors participate in debt consolidation programs, besides if you use the services of a reputable agency they probably have established connections with the major creditors, which simplifies the negotiation process. Your financial expert usually takes care of all paperwork, so you don’t have to deal with the creditors anymore. You will continue receiving statements from your creditors anyway, so you have a chance to track things down. The debt consolidation company may as well offer you a direct transfer of the monthly payment from your account on the same date each month.

Debt consolidation can make your life easier in a lot more ways. Debt consolidation program is strictly discreet and confidential, so none of your employer or dean will find out about this, although your credit report will demonstrate the fact. You could as well cancel all your credit cards and assure your debt consolidation company you won’t go into debts again, but they may allow you to keep one or several.

As for the debt consolidation drawbacks, there usually is a monthly administrative charge to be in the program, and the program doesn’t cover all debts you may have. You can consolidate unsecured debts, like credit card debts or store card debts. Some bigger loans like a car or house are not included in debt consolidation, so you will still have to pay these. Now, let’s see some facts about bankruptcy. Statistics shows that 1.6 million Americans file for bankruptcy every year, and divorced women are the most likely people to file for bankruptcy. The very word bankruptcy has a negative stigma to it, but as it turn out some people simply have no better options to choose from.

Bankruptcy is not all about loss and tragedy. Let’s see how it can help you become debt free. Once you file for bankruptcy your creditors can no longer take you to court (however, do check if this law acts in your state). Any income and earnings you might be having after declaring bankruptcy won’t go to pay out your pre-bankruptcy debts. It depends on the Chapter you choose to file for bankruptcy with if you keep your assets or not (for more information see the full article about Bankruptcy in our database).

The main advantage a bankruptcy gives you is a new start. You no longer owe and can finally start a debt free life. Moreover, any amount of debt is enough to file for bankruptcy, there is no minimum required.

What you should also know about bankruptcy, it’s a public matter and this information is accessible. Moreover, filing for bankruptcy involves some essential administrative and court fees, so the procedure is not cost-free. You will pay even more if you need an attorney. No surprise, your credit record will have a negative impact from the bankruptcy, which may be showing up for 10 years after you file. You may have difficulties getting a credit card or loan if you have a bankruptcy on your record. You will also be forbidden to file for bankruptcy during another six years.

However, filing for bankruptcy won’t save you from paying all your debts, just as much as debt consolidation. Bankruptcy doesn’t rid you from child support, alimony, student loans and taxes. Laws vary from state to state, but in most states you will be allowed to keep your house. No matter what the TV commercials say, it is not an easy choice between bankruptcy and debt consolidation. It is highly recommended you seek professional help before you make any decisions. However, in the conditions of present economical crisis either of the debt consolidation or bankruptcy is the only possible way out of debt.