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Debt Consolidation or Bankruptcy Petition: Understanding the Option that Best Suits Your Financial Needs

Posted on in Bankruptcy

Several respected financial analysts predict that the U.S. will continue to experience a decline in the number of bankruptcy filings in 2015. Some data suggests an estimated 800,000 bankruptcy petitions will cross the judicial bench of district bankruptcy courts across the U.S. this year. For those individuals or families considering joining the ranks, understanding the advantages and disadvantages of bankruptcy or debt consolidation is the first step in either process. Consulting with a debt counseling professional or experienced bankruptcy attorney is highly advisable.

Before scheduling a consultation, the following brief summary of both options may prove helpful.

Debt Consolidation

If considering this option, credit counseling services prove to be a sound source of information. Experienced counselors can assist with creditor negotiations but can also provide specific strategies for effective financial management. For those choosing this option, as a means to restructure debt, enrollment in a designated program is required with strict compliance of all budget line items.

Debt Consolidation Loans

Although available, obtaining a debt consolidation loan may only be an option for a select few. For those on the verge of bankruptcy, qualifying for such a loan, at a reasonable rate, may be beyond reach. If eligible though, large amounts of unsecured debt can be better managed with significant lower monthly payments.

Debt Consolidation Credit Reporting

If opting to work with a debt counseling service, it is important to remember that all creditors will indicate debt was settled for less than the original amount. This action negatively impacts a credit score, although it appears less ominous than a total default as indicated when filing for bankruptcy.

Bankruptcy Options

If bankruptcy appears the better option, consulting with an experiencedbankruptcy attorney will provide options and limitations for filing either Chapter 7 and Chapter 13 bankruptcy. Each option has both advantages and disadvantages.

Chapter 7 Bankruptcy

Although this is the traditional bankruptcy option, it is also the most damaging to credit reports as the bankruptcy will remain on the report for 10 years. This type also inhibits one's ability to secure credit or mortgage loan for at least two years. The advantage of Chapter 7, it clears nearly all debt and allows the possession of real property and one vehicle.

Chapter 13 Bankruptcy

This option will also leave a mark on credit reports but for a shorter period of time. As Chapter 13 permits for the reorganization of debt to secure a more manageable repayment schedule, this option clearly parallels debt counseling services but with an established court order to ensure the schedule remains in compliance.

Determining which option best suits your financial situation requires open conversations with professionals who can best describe the advantages and disadvantages. Before making your financial consideration, consider contacting the skilled and experienced Arlington Heights bankruptcy attorneys of Newland & Newland, LLP to discuss whether bankruptcy is the best recourse to securing a healthier financial future.

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