Debt consolidation and bankruptcy are two of the most common tools individuals use to get out of unmanageable debt and start redeveloping their finances. While both debt consolidation and bankruptcy can help during financial distress, they serve unique purposes, and it is important to understand the difference to make an informed decision about what works best for your financial circumstances. Working with a bankruptcy attorney can help you navigate your financial choices.
Debt consolidation companies have gained a strong presence in our recession’s economy. These businesses contact lenders and work out payment plans that reduce overall debt. The key benefit of debt consolidation is that it does not have any long-term mark on your credit report. The main problem is the monthly fees (for about 48 months) for both lenders and the cut taken by the consolidation firm. If your finances can withstand a monthly payment plan, and you want to keep your financial situation out of your long-term credit report, then debt consolidation is worth investigating.
For individuals who are unable to consolidate their loans or cannot afford to pay a monthly debt fee, bankruptcy offers a way to start over debt free. When filing for bankruptcy, always consult with a bankruptcy attorney to ensure the process occurs with the least long-term consequences and the most positive outcome. The benefit of Chapter 7 bankruptcy is that it takes only a few months, and your debts will be greatly reduced or eliminated.
Unfortunately, declaring bankruptcy will appear on your credit report for seven years after filing, which can have negative implications. Unlike popular assumptions, filing for bankruptcy does not mean you will not have access to credit for seven years. It simply means that lenders will see that you declared bankruptcy. If you have debts you cannot pay, consider hiring a bankruptcy attorney assess your financial situation and determine whether bankruptcy is the right choice for you.