During these difficult economic times, debt consolidation and bankruptcy are common debt management strategies. There are many advantages and disadvantages of debt consolidation and bankruptcy for dealing with debts. Debt consolidation has proponents that often promote this strategy as a simple way to save money and protect your credit rating. You can choose to consolidate debt through a secured loan or an unsecured loan, it’s up to you. Protect your reputation and credit rating. Debt consolidation is not a matter of public record, unlike bankruptcy. Even though a debt consolidation loan may show up on your credit report, it does not usually decrease a credit score like a bankruptcy filing does. You should consult an experienced debt settlement attorney to discuss your financial options.
Make sure to maintain your access to credit. Unless you are prohibited by the debt consolidation agreement, you are allowed to keep your credit cards. If you already owe a significant amount of money or are in default, then you may not be able to use your credit cards. Also, continued credit card use may defeat the purpose of debt consolidation. Simplify your debt management. When you consolidate your debt, you no longer have to keep making multiple payments, at different interest rates, to various creditors. Instead, you make one convenient payment that will work for you. If you do consolidate your debts, you may be able to obtain a more manageable monthly payment.
Although there are plenty of advantages to debt consolidation, it is not something to take lightly. You could end up paying hidden fees and tax liability. More importantly, you could lose your property. You could lose your home or vehicle if you default on loan payments. Also, be aware of hidden costs. Although lower interest rates and monthly payments seem like a catch, a debt consolidation loan could end up costing you more money. If you stay in debt longer, you may take the risk of paying more over the long term.
During bankruptcy, you may eliminate or restructure certain debts while you are under the protection of the federal bankruptcy court. The most popular types of bankruptcy cases that individuals and small businesses overcome are Chapter 7 and Chapter 13. Chapter 7 bankruptcy cases allow you to eliminate many types of debt. A Chapter 13 bankruptcy case allows you to reorganize your debts through a supervised repayment plan. Having protection from creditors is a huge advantage. When you file for bankruptcy, you get the help and protection of the automatic stay. The automatic stay prohibits most creditors and collectors from engaging in collection activity against you. Bankruptcy gives you a fresh start. During a Chapter 7 bankruptcy case, you can eliminate most unsecured debt such as medical bills and credit cards. Through a Chapter 13 bankruptcy case, you repay a portion of all your unsecured debts through the court-supervised repayment plan.
Bankruptcy also has its drawbacks as well. Negative impact on credit rating is a disadvantage. A bankruptcy filing does indeed lower your credit score. Depending on the type of bankruptcy case that you file, the filing may stay on your credit report for seven to ten years. However though, if you already owe a significant amount of money, you may already have a bad credit rating. Bankruptcy records are available at the federal bankruptcy courthouse where they are filed. As a practical matter, your family and friends are unlikely to find out you have filed bankruptcy unless you owe them money.