What Is The Difference Between Default And Bankruptcy
Defaulting on a loan means that youve violated the promissory or cardholder agreement with the lender to make payments on time. Each lender has its own requirements on how many missed payments you can have before it considers you in default. In some cases, that may be as little as one missed payment or as many as nine missed payments.
Filing for bankruptcy is a legal process that involves listing out your debts and assets and finding a way to resolve those debts. A judge will decide if any of your debts can be discharged and if your assets will be used to pay off the outstanding balance. The judge will also decide which assets youre allowed to keep and which can be taken from you.
Default and bankruptcy usually go hand in hand. Many borrowers default on their loans and then subsequently file for bankruptcy.
Steve Rhode Theget Out Of Debt Guy Responds
Just on face value, bankruptcy would certainly be at the top of my list to investigate further for you. You should meet with a local bankruptcy attorney whos licensed in your state and discuss your particular situation.
If your assets are limited or not protected in bankruptcy, just given your age and income, it would make mathematical sense if you could eliminate your debt and live on your limited income. Im less concerned about repaying your old debt because Im more concerned youll be able to afford to live and get by from this day forward.
Talk to a certified consumer credit counselor today for an expert opinion on your best option to get out of debt.
Your Credit Score Will Improve After The Bankruptcy
While it is true that the fact of your bankruptcy filing will remain on your credit report up to ten years, how quickly you repair your credit after filing for bankruptcy relief is determined by your payment history from then on, and that, of course, is up to you and how you manage your debts after your case closes.
Many of our clients have reported that their credit score improved shortly after their bankruptcy case closed. This happens because their unsecured debt was discharged and their debt-to-income ratio improved so dramatically.
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Some Of The Pros And Cons Of Debt Consolidation Companies Include:
- A debt consolidation company charges a monthly fee for its services. The monthly fee is deducted from the payment you make each month and can be very costly.
- Although unlikely, you may have a lower monthly payment for consolidated debts, however one of the differences between debt consolidation vs bankruptcy is that in bankruptcy you do not pay interest on unsecured debts. In fact, most people do not even pay back any unsecured debt at all. You can pay thousands of dollars in interest over the term of a debt consolidation agreement.
Cons Of Filing For Bankruptcy
Bankruptcy has its drawbacks as well. Here are a couple of them.
You give up some privacy. Your employer might learn about your bankruptcy case if you permit it to pull your credit reports or if your Chapter 13 plan payments are made through payroll deductions. Again, bankruptcy records are available at the federal bankruptcy courthouse where they’re filed and through the federal court system’s subscription-only PACER service. But as a practical matter, your family and friends are unlikely to find out you’ve filed bankruptcy unless you owe them money.
You might have to make some sacrifices. You might have to make some sacrifices to qualify for bankruptcy, such as surrendering nonessential or luxury possessions. Also, if you file a Chapter 13 bankruptcy case, you’ll be on a strict budget for three to five years, and you can’t get credit during that time without the court’s permission.
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Key Similarities And Differences
Lets first acknowledge the slim similarities between debt settlement and bankruptcy: Each is designed to erase or forgive certain types and certain amounts of debt.
Also, at the end of each, your credit score will have absorbed a hammering.
Thats pretty much it. Beyond that, the two processes are remarkably different animals.
Personal bankruptcy falls, generally, into two types: straight liquidation of assets and reorganization . Both go through the court system where a judge, ultimately, decides the outcome. Both also become part of the public record.
Once you have qualified for bankruptcy , creditors must stop hounding you for money.
Thats not the case with debt settlement. During the process usually between 24 and 48 months ;collection calls and mail demands continue, along with late and, possibly, over-limit fees continuing to accrue, with no guarantees theyll reach successful outcomes. For this reason, debt settlement can end in bankruptcy anyway.
Is Debt Consolidation Good For Bad Credit
As addressed in the previous answer, yes, debt consolidation can be good for bad credit. Again, however, whether your credit goes up or down depends on your spending habits after consolidating your loans. The more you put on credit, the worse your situation will get. However, the more you pay down your debt in a timely fashion, theres only one direction your score can go, and thats up. Bankruptcy, on the other hand, will initially make bad credit worse, then allow you to build it back up.
Debt consolidation has many advantages over bankruptcy. Which you choose, however, ultimately depends on your ability to repay your debt. If you cannot make minimum monthly payments, bankruptcy may be the only option for you. If consolidation is an option, however, use our;personal loan search engine;to explore viable options.
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Contact An Experienced Bankruptcy Attorney
Either debt consolidation or bankruptcy may be the most prudent choice for your personal situation, but you should consult an experienced bankruptcy attorney before you make any big decisions.;
At Lerner and Rowe Law Group, our bankruptcy lawyers can answer all of your debt consolidation or bankruptcy questions. Our legal team is experienced, compassionate, and available 24/7 to help you get on the road to financial freedom.;
Call our Phoenix office at or our Tucson location at . You can also reach us online via our LiveChat service, or submit a free case evaluation anytime. Contact us today!
Lerner and Rowe® Law Group is owned and operated by attorneys Glen Lerner and Kevin Rowe. Sean Forrester is the criminal defense managing attorney of Lerner and Rowe Law Group and is a licensed attorney in the state of Arizona. Andrew Nemeth is the bankruptcy managing attorney of Lerner and Rowe Law Group and is licensed in the state of Arizona.
Voted Best Best Criminal Defense and Bankruptcy Law Firm in the Valley in 2016, 2017, 2018, 2019, 2020 and 2021 in AZ Foothill Magazine independent reader polls.Awarded membership with Arizonas Finest Lawyers through peer-review for demonstrating leadership and professional standards consistent with AFLs criteria and guidelines.
Lerner and Rowe® Law Group and Lerner and Rowe® Injury Attorneys are separate and independent companies/law firms. Firms do not have access to the others cases, nor share information with the other.
Is Bankruptcy Or Consolidation The Better Way To Handle Your Debt
If you are struggling with debt, you need to understand the difference between a bankruptcy filing and debt consolidation to understand which is best for you.
Consumer debt, including credit cards, lines of credit, student loans and more, is at an all-time high in America. Unfortunately, many of the people who carry that debt have found themselves in over their heads, unable to make progress towards clearing it. This is due to many factors, among them our countrys recent economic downturn , poor budgeting, overspending, the increasing costs of medical care and more.
Regardless of the reasons why, you may find yourself struggling to pay your debts. Attempting to cover expenses could leave you in the situation of facing repossession or foreclosure, dealing with wage garnishments, unable to buy groceries and dealing with threats of utility shut-offs. There could also be harassing phone calls, letters, texts and emails from one or more creditors causing you additional stress. If this sounds familiar, you may have considered attempting to consolidate your debts or you may have thought about filing for personal Chapter 7 or Chapter 13 bankruptcy. Now you wonder which is best for your unique situation.
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Bankruptcy: The Most Dramatic Choice
McShane worked with another marketing professor at Northwestern, David Gal, to identify the extremes people will take to get themselves out from under debt.
At one extreme, there are consumers who can afford to pay off their debts over time from savings and income without any changes to the structure of their debts, Professors McShane and Gal said.
This strategy requires substantial lifestyle changes. But not everyone has a tech patent up their sleeve, a long-lost millionaire uncle, or debt that can be dissolved by not eating out for six months.
At the other extreme, the professors say, there are consumers who choose to walk away from their debts, either by defaulting or by declaring bankruptcy.
There are good reasons people choose bankruptcy. A 2016 study by the American Bankruptcy Institute found that nearly 500,000 people filed for Chapter 7 bankruptcy and 95.5% of them had their debts discharged. That means they walked away debt free.
The same study found that individuals who used Chapter 13 bankruptcy didnt have as much success, but more had their debt discharged than didnt .
In a Chapter 7 bankruptcy, with the aid of a bankruptcy attorney, you get a fresh start by exposing all your assets to a trustee collecting for creditors. A Chapter 13 bankruptcy, for those with regular income, allows you to keep some assets and pay off your debt over time.
When You File Will Affect How Many Tax Refunds You Lose
When you declare bankruptcy in the calendar year can mean the difference between losing only one years tax refund or losing multiple refunds. Your tax refunds for any years taxes that need filing, plus the refund from the year you file go to your bankruptcy estate.
If you normally get a tax refund, January or February might be a bad time to file bankruptcy.
Early in a calendar you likely would not yet have filed taxes for the previous year as you dont normally get t-slips until the end of February, so therefore if you file bankruptcy in that period, the refund would go to the bankruptcy estate along with the refund next spring. This is why many people wait until after their tax returns have been filed and they have received their refund to declare bankruptcy.
Does the time of year matter when youre considering filing a consumer proposal?
One key difference between a bankruptcy and consumer proposal is that you keep your assets, and that includes any tax refund owing to you. So you dont lose any tax refunds in a proposal.
There is however still a timing issue to consider when filing a proposal if you owe money, or will owe money, to Canada Revenue Agency. Your proposal will include all tax debt up until the year of filing but not any owing for the year you file your proposal.
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Pros Of Seeking For Debt Relief
- Negotiate Payment Terms:If a creditor agrees to an alleviation of your debts, you can schedule a payment plan that works for you. The lender would rather receive a portion of the debt over an extended period than receive no repayment at all. Debt relief helps you achieve a cooperative solution with your creditors.
- Protect Your Credit:Because youre not filing for bankruptcy, your credit report doesnt take any additional damage. However, in order to get debt relief, a borrower must already be delinquent with their debt which means their credit has already suffered.
Learn About The Types Of Personal Bankruptcy
Federal courts have jurisdiction over all bankruptcy laws, so you must file a petition in a federal bankruptcy court. There are two main types of personal bankruptcy:
- Chapter 13 allows people with a steady income to keep their property. This bankruptcy plan includes allowing filers to keep a mortgaged house or car they might otherwise lose in the bankruptcy process.
- Chapter 7 is known as straight bankruptcy. It involves liquidating all assets that are not exempt under federal or state law.;;;;
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Pro: You Could Score A Lower Interest Rate
Say you have credit card debt with an APR of 15.00%. With a personal loan, you could find an even lower rate if you qualify, or have a cosigner who does. These vetted personal loan lenders, for example, offer rates starting well below 10.00%.
That said, be on the lookout for origination fees from personal loan companies. When shopping around, compare APRs because they include both the interest rate and the origination fee, if there is one.
Debt Relief: Understand Your Options And The Consequences
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Find that you’re just not making progress on your debt, no matter how hard you try? If that’s the case, you might be facing overwhelming debt.
To break free of this financial burden, look into your debt relief options. These tools can;change the terms or amount of your debt so you can get back on your feet more quickly.
But debt-relief programs are not the right solution for everyone, and its important to understand what the consequences might be.
Debt relief could involve wiping the debt out altogether in bankruptcy; getting changes in;your interest rate or payment schedule to lower your payments; or persuading creditors to agree to accept less than the full amount owed.
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How Does Bankruptcy Work Or Is Debt Consolidation Better
Sometimes the New Year wastes no time kicking you right in the butt. For those of you looking at a bleak 2016 because of your financial situation, there are some hard choices ahead as you decide what to do about mounting debt and the havoc its wreaking on your life and future security. You may be considering two different avenues debt consolidation with a loan or asking;how does bankruptcy work? Both are good avenues to clear your debt, but both have some pros and cons that youll need to consider before you make a decision.
Con: It Might Not Be The Fresh Start You Imagined
Whether youre considering Chapter 7 or Chapter 13 bankruptcy, it wont offer you the clean slate you might have been expecting.
For one, its unlikely youll discharge every cent of your debt. Student loans are difficult to discharge via bankruptcy, for example.
Even if youre in the minority of consumers who could exit a proceeding debt-free, youll be left with little to no assets and a credit report in need of serious repair.
Consider that if you tried to borrow a federal Parent PLUS student loan, for example, the Department of Education would deem you to have adverse credit history if your bankruptcy occurred within five years. Private lenders would also be skeptical of a credit report showing a recent bankruptcy.
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Should I File For Bankruptcy Or Default On My Loan
Defaulting on a loan and filing for bankruptcy are not opposite choices. In fact, Fleischman recommends defaulting on a loan before filing for bankruptcy. If you havent defaulted, it might indicate that you havent given yourself enough time to allow your financial situation to improve.
If you do default, then filing for bankruptcy can protect your assets from being seized by creditors. It can also protect you from having future wages or an inheritance garnished. Bankruptcy is useful not only for protecting what you have, but also for protecting your future, Fleischman says.
Other Debt Management Options You May Consider
Debt management options arent limited to debt consolidation and bankruptcy. Other steps you can take to manage your debt include:
Carrying debt for decades isnt something most people look forward to. Either bankruptcy or debt consolidation could be a solution, depending on your debt, your finances and your objectives.
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So Whats Better Bankruptcy Vs Debt Consolidation
If youre considering debt settlement or debt consolidation, you owe it to yourself to consider bankruptcy. Dont end up like my clients who throw away tens of thousands of dollars to debt consolidation before filing bankruptcy. Bankruptcy vs. debt consolidation? No contest. Call us now so we can review your situation with you and see if bankruptcy is right for you.
How Does Debt Consolidation Work
Before we can compare bankruptcy against debt consolidation, we need to go over what debt consolidation is and how it works.
Debt consolidation is the process of merging multiple debts into a single, more comfortable to manage debt. The general idea is debtors will find it easier to handle one debt than balancing numerous payments, which are all on different schedules and are being paid out to different creditors.
Consolidating debt has two objectives: simplifying repayment processes for debtors, while simultaneously reducing monthly payments and interest rates. Essentially, you would be taking out a new loan in order to pay off the debts you have already incurred.
Do not confuse Debt consolidation with debt settlement, which is paying creditors with a lump sum payment, which is lower than the total amount you actually owe. There are several ways to negotiate with your creditors to settle a debt. If you qualify, a credit counselor from an approved credit counseling agency will negotiate with the creditors for you. In other situations, a person will hire a debt settlement company for a fee, usually based on the percentage of debt owed, to work directly with their creditors. In a few cases, a person could choose to negotiate with their creditors on their own. An important thing to remember about any debt settlement is that any amount you are not required to pay back will be considered income for federal income tax purposes.
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