If you are in debt, you must be thinking whether to file for bankruptcy or go for debt consolidation. Your ultimate goal is to be debt free, but which path should you choose? Both bankruptcy and debt consolidation are not easy as they both have their own pros and cons. The option you choose should depend on your current financial situation.
On the face, debt consolidation seems like a better option than bankruptcy. Your credit would not suffer the way it would if you file for bankruptcy. Bankruptcy remains on your credit record for ten long years; this is not the case with debt consolidation. Once you are free of debts using a debt consolidation program, you can quickly rebuild your credit. However, in case of bankruptcy it would take you a long time to rebuild your credit.
Debt Consolidation
Under a debt consolidation plan, all your unsecured debts would be consolidated. If you are going for debt consolidation, it is wise to disclose all your debts. The debt consolidation company would then negotiate with your creditors to bring down your debt. Debt consolidation companies can easily negotiate with your creditors to lower the interest rates and remove the late charges because they are professionals. This helps to bring down your overall debt.
Remember that creditors are always ready to work with the debt consolidation company because they know that in the event of bankruptcy they might not get anything. Therefore, they are more than willing to bring down the interest rates and remove the late charges.
Once all the negotiations have taken place and a new debt amount is reached, you have two options. You can either make a monthly payment to your debt consolidation company, which will then make the payments to all your creditors.
The other option that you have is to take a debt consolidation loan and pay off all your creditors. You would then need to make single monthly payments to your debt consolidation company.
Debt Consolidation Advantages
There are obvious advantages associated with debt consolidation. First, you will feel good about taking care of your debts. Secondly, your monthly payment would become manageable. Furthermore, you would just be making a single payment every month. This would remove a lot of headache.
You will be sent credit card bills and thus you can keep a track of the progress. The best part is that your employer will not find out about your debt consolidation. However, it would appear on your credit report. All your credit cards might be cancelled, except for one or two. But the good part is that if you stick to the program you would be debt free in a short span of time.
Bankruptcy
Bankruptcy helps you get rid of your debts but it damages your credit record. You can file under Chapter 7 or 13. Under Chapter 7 your non-exempt assets would be liquidated to pay off your creditors. Under Chapter 13, you will follow a repayment plan of 3 to 5 years’ duration. After making all the payments as per the plan, you will be given a discharge.
Bankruptcy is an option that you should consider only after you have tried other options such as debt consolidation, credit counseling, etc. If there is a way you can resolve your debts without filing for bankruptcy; you should go for it. Maybe a close relative can help you out with your debts or maybe you should take up a second job to pay off your debts.
If you feel that you have no other option left but to file for bankruptcy, you should consult a bankruptcy lawyer to get the right advice. A bankruptcy lawyer would be able to advice on which chapter to file under and all the requirements that you need to meet.