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Deerfield Beach Bankruptcy Attorney > Blog > Bankruptcy > Bankruptcy vs. Debt Consolidation: Which Is Better?

Bankruptcy vs. Debt Consolidation: Which Is Better?

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Many people facing significant debt often think of ways of eliminating or reducing it. Depending on your circumstances, filing for bankruptcy or consolidating debt can be a good option. Both options have advantages and drawbacks; deciding which option is better can be challenging. If you are struggling with overwhelming debt and are considering bankruptcy or debt consolidation, it is vital that you understand the differences between the two. That way, you can decide which option is most appropriate for your solution. To determine the best solution for your needs, it is also advisable that you consult with a professional.

Understanding Bankruptcy

Bankruptcy is a legal process that can allow for reorganizing or eliminating debts (depending on the type). There are different types of bankruptcies for individuals and businesses. Individuals may file for Chapter 7 and Chapter 13 bankruptcy. For businesses, the most popular option is Chapter 11.

Usually, it is advisable to consider bankruptcy as a last resort. This is because bankruptcy can have serious consequences. Bankruptcy can severely impact your credit score, making it challenging to get loans, rent housing, or obtain new credit for years. Fortunately, there are ways to rebuild your credit. Also, depending on the type of bankruptcy, it may be necessary to liquidate your assets. Chapter 7 bankruptcy requires selling assets and using the proceeds to pay creditors. However, only nonexempt is sold.

However, bankruptcy has several noteworthy benefits, including the following;

  • Debt relief: Bankruptcy can eliminate or significantly reduce debts, offering a fresh financial start. For instance, Chapter 7 bankruptcy discharges most unsecured debts.
  • Protection from creditors: The automatic stay that goes into effect once you file for bankruptcy can prevent creditors from pursuing you for payment. It can bar collection efforts, such as wage garnishment and foreclosure.
  • A chance to reorganize debts: Chapter 13 and Chapter 11 allow individuals and businesses to develop a repayment plan and make manageable payments over the years while retaining assets.

Understanding Debt Consolidation

Debt consolidation involves combining several debts into one debt or loan. With debt consolidation, you take out a new loan to pay off your existing debts. Borrowers could use personal loans, balance transfer credit cards, home equity loans, and a home equity line of credit (HELOC). Usually, borrowers consolidate their debt for two main reasons. First, debt consolidation allows borrowers to get a low interest rate. Second, people consolidate their debts to reduce the number of bills they pay every month. After debt consolidation, you only make one monthly debt payment.

Unlike bankruptcy, debt consolidation does not eliminate your debts but simply streamlines payments and may lower the overall interest. While debt consolidation has a smaller negative impact on your credit score, accumulating new debt while consolidating can affect your credit score over time.

So, Which Is Better?

Determining which is better between bankruptcy and debt consolidation depends on your unique situation. Which option is better depends on your assets, income, credit score, current debt, and many other factors. If, for instance, your debt is insurmountable, bankruptcy may be the best option.

Contact Us for Legal Guidance

If you need help determining whether bankruptcy is a good option for you, contact our skilled Deerfield Beach bankruptcy attorney at the Law Office of Adam I. Skolnik, P.A.

Source:

debt.org/bankruptcy/how-will-filing-bankruptcy-impact-my-credit-score/

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