Can You Afford To Make The Consolidation Loan Payments
Consolidating your debts won’t eliminate any of the amounts you owe. Even if the consolidation loan reduces what you pay monthly, you still have to pay off the total amount of the debt. So, if you don’t have a steady income or can’t afford the new monthly payment on a consolidation loan, consolidating your debts probably won’t help you get back on track.
Is Chapter 7 Better Than Other Debt Relief Options
We mentioned a couple of ways that Chapter 7 would be better than other debt relief options above. Even though some people consider bankruptcy more of a last resort, you should not think of it that way. Ways that filing Chapter 7 may be the best debt relief option for you include:
Usually takes less than 6 months. Chapter 7 can eliminate most of your debts within four to six months without any payments to the creditors.
The creditor canât continue collection efforts after you file your Chapter 7 petition without court approval. This means all the phone calls have to stop!
Stop collections and harassment. Creditors are not permitted to collect discharged debts. A creditor may face severe penalties for violating the discharge order.
Stops wage garnishment. A Chapter 7 bankruptcy case stops wage garnishment, debt collection lawsuits, and other forms of debt collection.
Erases deficiency judgments. If you choose to surrender your car or house because you can’t afford the payments, a creditor can’t obtain a deficiency judgment.
Doesnât have to be expensive. Your costs for filing a Chapter 7 case may be very low if youâre eligible to use Upsolveâs free bankruptcy filing tool and file bankruptcy without a lawyer.
Can I Negotiate A Credit Card Debt Settlement Myself
Yes, you can do DIY debt settlement, but it can be complicated, risky and damaging to your credit score. In addition, debt settlement requires you to go delinquent on your payments, which hurts your credit history and stays on your credit report for seven years. If you are having trouble paying your bills, you may want to start by talking to a nonprofit consumer credit counseling agency.
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Con: You May Continue A Cycle Of Debt
Although an unsecured personal loan could wipe out some or all of your existing debt, youll still be responsible for paying off new debt.
To break the cycle of debt, its wise to stop borrowing money as soon as youve consolidated your debt. Start by cutting up your credit cards and re-evaluating your spending patterns.
When To Consider Debt Settlement Or Bankruptcy
If your monthly debt payments, excluding mortgage or rent, exceed 20% of your income, you have a debt problem that requires action. The seriousness of the problem, and your ability and determination to overcome it, will determine whether a debt settlement plan or bankruptcy is the better option.
Here are some scenarios in which debt settlement may provide the better path out of debt:
- Youre able and willing to negotiate with creditors or debt collectors on a settlement plan that you can afford and stick to.
- Your creditors will agree to greatly reduce your debt burden in exchange for your commitment to make a lump-sum payment.
- Your income is stable enough that you can continue to pay your mortgage or rent and other essential bills in addition to the payments required under a debt settlement, while still saving some money for emergency expenses.
Here are some scenarios in which bankruptcy is the better option:
Its important to remember that these are general guidelines, and anyone in serious debt who is weighing the pros and cons of debt settlement or bankruptcy is recommended to consult with a nonprofit credit counselor. Counselors from National Foundation for Credit Counseling – member agencies such as InCharge Debt Solutions can help you evaluate your current financial situation and the various debt relief options that may be available to you.
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What Happens When I File Bankruptcy
Filing for bankruptcy after youve defaulted can protect your assets from being seized by the lender or creditor.
In a Chapter 7 bankruptcy, the court will decide which of your assets to sell in order to repay your creditors. Any remaining debt will be discharged, except for student loans, child support, taxes and alimony. This type of bankruptcy will stay on your credit report for 10 years.
If you file for Chapter 13, you may be able to keep more of your assets while discharging some of your debts. The debt that is not discharged will be put on a three- to five-year repayment plan. This will stay on your credit report for seven years.
Your credit score will likely go down significantly if you file for bankruptcy by at least 130 points, but sometimes by as much as 200 points or more. If you work in an industry where employers check your credit as part of the hiring process, it may be more difficult to get a new job or be promoted after a bankruptcy.
Jay Fleischman of Money Wise Law says that if you have credit cards, they will almost always be closed as soon as you file for bankruptcy. Getting another loan or credit card will also be very difficult in the early stages after bankruptcy. But as time goes on, the bankruptcy will affect your score less and less if youre responsible with your credit.
Pros And Cons Of Bankruptcy
Though it has a bad connotation, bankruptcy does have some pros worth discussing. Chapter 7 bankruptcy is one of the fastest ways to get out of debt even faster than debt settlement. Chapter 13 and Chapter 7 are clean breaks from your debt, but that doesnt come without a cost. Bankruptcy comes with fees, and if you dont qualify for Chapter 7, you must file for Chapter 13 bankruptcy and spend the next 3-5 years making monthly payments on your debt.
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Debt Relief Vs Bankruptcy: Which One Is The Better Option
If you are struggling to handle your debts, you may have looked into some of your options. In that case, you have probably found two main ways to resolve debts: filing for bankruptcy and pursuing debt relief. You may be wondering which is the right option for you. In that case, keep reading. Weve taken a closer look at debt relief vs. bankruptcy to help you decide which option to pursue.
The Bankruptcy Protection Act Of 2005
Indiscriminate spending coupled with economic downturns, loss of employment, etc. has made accumulating debt more complex than ever before. Previously, some people would turn to reckless spending, knowing they could file for bankruptcy and cheat creditors of their dues. The Bankruptcy Protection Act of 2005 makes it harder to use this debt resolution process unless one fulfills the legal requirements.
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Why People Choose Between Debt Relief And Bankruptcy
When a person canât pay their debts, creditors can become extremely demanding in their attempts to collect debts. In some cases, debt collectors may harass individuals for payment of debts. Of course, if you don’t have enough income to make all of your monthly payments then what the debt collector that is calling you may suggest, your financial situation may simply make a payment plan to get back on track impossible.
Some debt collectors and creditors may push you toward a specific debt relief option. Keep in mind, though, that their recommended debt relief option may not be in your best interest , but it could be in the best interest of the creditor.
Before you decide to use any debt relief program, you need to carefully review all of your options to get out of debt. Some debt settlement programs could cause you to get into additional debt problems if you are not careful.
You should only make a decision about how to get out of debt after weighing the pros and cons of each debt relief option.
What Does Bankruptcy Do To One Credit
When a debtor files for Chapter 7 Bankruptcy, they will usually notice a drop in their credit score, but the average Chapter 7 case only takes about 4 to 6 months. When the case is over, a debtor can start rebuilding their credit almost immediately. Once the bankruptcy is complete, the debtor who is looking to rebuild the credit must get positive credit actions onto their credit report. Our former clients have reported to us that there are a number of credit card companies, including Capital One, who offer credit cards to debtors shortly after discharge. Similarly, debtors can often get car leases right after bankruptcy. Additionally, a debtor can get an FHA mortgage loan after waiting two years from discharge. These different types of credit, if paid on time, will reported to the credit bureaus and will boost the debtors score.
If you have any questions about Bankruptcy or debt settlement, please feel free to contact the Law Offices of David I. Pankin, P.C. at 888-529-9600 or by using our easy online contact form.
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The Chapter 7 Filing Process
If you do qualify, the process involves the following steps:
1) File a petition with the bankruptcy court in your local area.
2) Provide the court with a schedule of liabilities and assets, current income and expenditures, executory contracts, and unexpired leases. Additionally, you need to provide a statement of financial affairs.
3) Give the trustee your tax returns for prior years and those undergoing filing during the case.
4) Submit proof of credit counseling and any debt management plan you create during the counseling.
5) Submit additional proof of earnings and financial accounts.
6) Pay a $245 filing, a $75 miscellaneous administrative fee, and a $15 trustee surcharge .
Pro: You Can Hit The Reset Button On Your Repayment
With a Chapter 7 bankruptcy, you could dispose of some or all of your debt.
With a Chapter 13 proceeding, you would establish a three- to five-year repayment plan for your remaining debt. That repayment plan might even give you the convenience of a single monthly payment if youre working with a credit counselor on a debt management plan.
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Bankruptcy Or Debt Consolidation: Which Is Better For You
If your debts are becoming unmanageable, bankruptcy and debt consolidation are two remedies to consider. While debt consolidation is significantly less damaging to your credit, it’s not possible for everyone. If you’re getting overwhelmed with debt, here’s a rundown on which option may be better for you.
Which Option Is Better Or Worse For Your Credit Score
Any form of debt restructuring program will affect your credit score.
Filing bankruptcy will cause your credit rating to fall immediately, but this is only temporary. The information about your bankruptcy will remain on your credit report for up to seven years for a first bankruptcy and 14 years for a second one. A consumer proposal remains on your credit for a maximum period of 6 years from the date it was filed.
This doesnt mean that you cant get any credit when you file a bankruptcy or proposal. People who take active steps to repair their credit after filing insolvency can get regular credit cards, car loans and, over time, a mortgage. Most can qualify for a mortgage two to three years after re-establishing new credit lines, dependant on other qualifying criteria like your income.
A debt settlement will impact your credit for at least six years, but possibly longer. Informal debt settlement can severely harm your credit if the process does not go smoothly. While you are in the negotiating stage, your credit score will drop, especially if you stop making payments.
Suppose your debt settlement company takes six months to negotiate but cannot make an agreement . In that case, you will have several new negative marks on your credit history and higher debt, making it difficult to recover.
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How Long Does A Debt Settlement Program Last
Debt settlement programs assume an effort that will continue for many months. The time needed to produce a settlement depends on a number of factors. These may include: your financial hardship, the age and balance of the accounts that you owe your creditors, c) the funds you have available to pay for a settlement and the willingness of individual creditors to enter into debt settlement negotiations. While no guarantees can be given, generally the quicker you save money the sooner you will be in a position to reach your goals. Increased savings will provide you with the option to accept lesser discounts and will also enable you to accumulate funds to reach your debt settlement goals more quickly. However, any settlement must be acceptable to both you and your settling creditor.
A Debt Agreement May Be A Suitable Alternative To Bankruptcy
- It can benefit your creditors as they may receive more money than if you were to become bankrupt.
- It can provide relief if you’re unable to manage your debts, but there are some consequences which may affect you.
- Be aware that there are limits to the amount of debt and income you can have to be eligible.
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Major Pros And Cons Of Debt Consolidation
Instead of paying for professional advice, rely on a certified credit counselor working for a nonprofit organization. You can find a list of legitimate credit counseling agencies via the Department of Justice.
Before you pursue debt consolidation, check out the following pros and cons.
|Put an expiration date on your debt|
Debt Settlement Usually A Bad Alternative To Bankruptcy
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Debt settlement isnt the Wild West industry it was a decade ago, when people routinely paid hefty upfront fees to companies that failed to deliver any relief.
Thanks to increased regulation and enforcement, the much smaller number of settlement companies that remain often do what they promise: persuade at least some of a borrowers creditors to forgive part of the debt, typically in exchange for a lump sum payment.
Several people Ive interviewed lately reported positive experiences with debt settlement, so I decided to take another look at the industry. It turns out that hiring a negotiator could be a reasonable alternative to bankruptcy for some. But debt settlement is not as consumer-friendly as the industry presents it, and some of the people who praised the companies didnt fully understand their alternatives or the longer-term consequences of settling debt.
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Is Debt Consolidation Better Than Bankruptcy Or Vice Versa
As with many questions in the financial realm, this one doesnt have a definitive answer whether debt consolidation or bankruptcy is best for you depends on your specific circumstances.
If your financial situation is relatively stable and you have merely gone a bit overboard with the credit cards, debt consolidation can help you get a handle on everything.
As this option is less severe than bankruptcy, it is likely a better choice in this situation.
However, if you are in serious financial trouble and find yourself drowning under your debts, a debt consolidation loan may only prolong the inevitable. In extreme scenarios, bankruptcy is likely a smarter option.
Moving debt around will only leave you struggling for a longer period, while bankruptcy can get you back on solid ground more quickly.
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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How Debt Consolidation Or Filing For Bankruptcy Affects Your Credit
Although a debt consolidation loan will likely show up on your , as long as you stay current on the debt, it won’t typically lower your much, if at all, under most scoring models. But when you seek new credit in the future, these loans could be viewed negatively by creditors who see them in your credit files because they might imply prior debt problems.
A bankruptcy filing, on the other hand, definitely hurts your credit scores. The damage it will do depends, in large part, on how good your credit was before you file. If you’re delinquent on many accounts before you file, your credit will already be already bad. If you then file for bankruptcy, your score will take a dip but not as bad as if your credit was good before filing for bankruptcy. If you file for bankruptcy when your credit is good, your score will take a much bigger hit post-filing. Depending on the type of bankruptcy case you file, the filing may stay on your credit reports for seven to ten years. But filing for bankruptcy might actually help your credit, too, like by improving your debt-to-credit ratio, getting rid of delinquent accounts, and giving you a chance to start rebuilding your credit.