Bankruptcy or Debt consolidation: which is better to opt for?

If you are in debts that are becoming hard to repay, you must be thinking of debt relief options. For a debtor with outstanding amounts, it is essential to decide correctly which option to select - bankruptcy or debt consolidation. To decide on “which is better bankruptcy or debt consolidation?” one needs to understand what are debt consolidation and bankruptcy all about.

Debt consolidation is a debt repayment option where you take the help of a debt consolidation firm. This debt consolidation firm negotiates with your creditors on your behalf to reduce the interest rate. You will need to pay an amount for all your debts to the debt consolidation firm who will pay to the individual creditors on your behalf. Choosing a debt consolidation program can affect your credit both ways. Some lenders can consider the fall in credit score as a “negative mark” whereas others can appreciate your willingness to repay, even if through reduced interest rates.

Bankruptcy, on the other hand is a declaration of your inability to repay. It is a better option for those who are neck deep in debts. You can file for chapter 7 or 13 accordingly. In chapter 7, your assets are liquidated to pay off the debts. Chapter 13 allows you to repay your debts through a payment scheme under the protection of the court. A repayment plan prepared by the debtor is approved by the creditor and a court trustee. However, the debtor’s credit gets affected if he files Chapter 7 bankruptcy and not Chapter 13.

It is always better to try out ways of repaying your debts, either by a self repayment plan or through debt consolidation program. When you choose a consolidation program, it does have a positive affect on your credit score in the long run. Therefore, when you think about “which is better bankruptcy or debt consolidation?”, consider the credit affects of each process as well as analyze your financial situation. Depending upon how much you can pay and how your credit will be affected, you can choose to file bankruptcy or enroll for debt consolidation program. If required, you can also take the help of professionals who will guide you to make the right choice.