If you are overwhelmed with debt and cannot afford to pay your monthly obligations with bills any more, you may be considering either a debt consolidation plan or declaring a
chapter 7 or 13 bankruptcy. Below we will point out the pros and cons of debt consolidation vs bankruptcy to help you make the best decision for your situation.
In a debt consolidation program or debt management plan, you agree to a contract with a debt consolidation service who will negotiate lower payments and reduced interest rates with your creditors. Other pros of debt consolidation is you will only have to write one check every month to the debt management service, to meet the obligations to your creditors. Debt consolidation companies will take care of all the paperwork and negotiations with the creditors and you will still receive monthly statements from your creditors. Some cons of this program includes: that loans that are secured, such as a mortgage, home equity loan or car loan cannot be included in the program and you will be required to make your car and house payments monthly. Debt consolidation programs should not have any major negative impact on your credit, except you will no be able to use or obtain any more credit while be enrolled in the plan. The average length you will be enrolled in a debt management plan is 2-3 years, but can be longer depending on your financial situation.
Declaring bankruptcy helps debtors get relief from debts they can't pay, and creditors get paid from whatever assets the debtor does not need to live and go forward. The biggest advantage of filing for bankruptcy is that it will give you a fresh start. You will not be liable for debts or liabilities that are included in the bankruptcy. There is also no minimum amount of debt owed to declare bankruptcy. Some other pros of filing for bankruptcy is that it will allow you in certain situations to keep real estate or mortgages and vehicles or car loans. Some cons of bankruptcy is that your credit rating with be negatively impacted. Debts that you may still be liable to pay for include taxes, child support, alimony and student loans.
To determine the best option when deciding between debt consolidation vs bankruptcy, it is highly recommended to seek professional advice.