Bankruptcy vs. Debt Consolidation – 5 Things to Consider
Debt consolidation and bankruptcy are becoming increasingly popular methods to address serious financial hardships. Both options offer their own advantages and disadvantages, with bankruptcy often being viewed as a last resort, therefore making debt consolidation worth consideration.
However, personal financial situations and many other variables will determine how viable bankruptcy or debt consolidation is for any individual, so there are many things to take into consideration before deciding.
1. Your Credit Rating
One of the biggest drawbacks regarding bankruptcy is the impact it has on your credit rating. Bankruptcy claims will remain on your credit rating for as long as ten years, which will potentially impact your ability to get future financing from creditors.
So, if you are worried about negatively impacting your credit rating for the foreseeable future then debt consolidation may be a better option.
However, you should also take into consideration the fact that when using debt consolidation, your rating will likely be poor to begin with – even more so if you are in default. Still, should your consolidation agreement allow it you may be able to keep certain credit cards for emergency purposes.
2. Protection from Creditors
If you have large amounts of debt from various creditors, the idea of them making frequent collection attempts can be very stressful, whether it’s through constant phone calls, threats of lawsuits, repossessions or even foreclosures.
Filing for bankruptcy ensures complete protection in what is called an automatic stay. This prevents almost all creditors from conducting any activity while you attempt to repay debts on secured loans.
No such protection is offered from debt consolidation, so you could face the threat of repossession, foreclosure, and other forms of debt collection.
3. Monthly Payments
One of the main benefits of debt consolidation is that it allows for easier management of debt from various creditors. This makes it easier to pay back what you can afford every month in simple payments, while the consolidation firm negotiates lower debt repayments with the creditors.
Debt consolidation takes away the stress of trying to manage various monthly payments to several creditors, but you will have to meet monthly payments as well as the fee for the firm representing you.
Be sure to consider how much in monthly payments you will be able to afford, as debt consolidation is a long, arduous process that will take many years to complete. Defaulting on these loan payments could see you lose property or vehicles as a collateral for the consolidation loan.
If you think you cannot even afford monthly payments for debt consolidation, then your only option may be bankruptcy.
Perhaps one of the more prominent aspects of filing for bankruptcy is the fact that it is on public record, meaning anyone can find out your current financial situation with a little research.
This includes your employer or potential employer, which is something that you would obviously want to avoid. Moreover, it can be difficult to know that anyone, including friends, family, or work colleagues could find out about the dire financial situation you are in.
Debt consolidation agreements are entirely confidential, allowing you to work on repaying loans and reorganizing your finances in privacy.
5. Lifestyle Sacrifices
To qualify for bankruptcy, you will need to surrender non-essential and luxury possessions, which will mean sacrificing a lot of your lifestyle choices – but considering these have led to poor finances, it may not be the worst thing to occur.
Similarly, certain forms such as Chapter 13 bankruptcy require the adherence to a very strict budget for up to five years. As previously mentioned, you won’t be able to receive any credit without court permission, meaning you cannot rely on credit cards in any shape or form.
The Travis Law Firm provides professional legal representation for Chapter 7 & Chapter 13 bankruptcy services for residents of all cities in Riverside and San Bernardino Counties. We have offices in Riverside, San Bernardino, Victorville, Temecula, Cathedral City and Ontario for the convenience of our Inland Empire, High Desert, and Coachella Valley clients. For more information about our bankruptcy law services and other legal representation, call us today at (951) 274-9501 or (951) 274-9501.