Credit Counseling or Bankruptcy?
Soon, You May Have No Choice
Bad-Credit-Advisor.com presents an outlook on credit counseling versus
bankruptcy choice
If you are looking for a quick
debt consolidation than you should be alarmed with the ongoing
legislation to severely limit the ability to file bankruptcy in cases where
people have the ability to pay.
If not
bankruptcy then what? The
credit counseling ... which pitfalls millions of unfortunate Americans
are already facing.
If the pending bankruptcy bill is enacted, the new law would require
people to enter into credit counseling programs prior to filing for
bankruptcy. This may cause the already huge credit counseling industry to
expand even further... and limit your chances for a quick and easy way out
of debt.
Critics are arguing about the outcome of this legislation... Some say
that credit counseling ignores the root of the problem: insufficient income
to manage existing debt. In contrast, Chapter 7 and Chapter 13 bankruptcies
are effective because they address the cause of peoples’ financial problems
by eliminating or reducing the total amount of debt.
While many criticize this legislation, others think that this would be
the right decision. Their argument is that bankruptcy was never designed to
be an "alternative to repayment." Bankruptcy should always be a last resort.
Debt management plans are designed to be an "alternative to bankruptcy" for
those who have some ability to pay.
Well, let's see how do we deal with an overwhelming debt today, when we
still have the choice? Unfortunately, millions of people ask this question
every year... Today, if you are in financial hot water, you may consider
these choices:
- enroll into a debt management plan with a credit counseling agency
- or file for bankruptcy
How do you know which will work best for you? It depends on your amount
of debt, your level of discipline, and your plans for the future.
Not all credit counseling agencies are to rob you of your last cash.
There are some that won't necessary force you into the debt consolidation
program but offer some real counseling first. Then, if you're still unable
manage your debt, they'll offer you a program that would be fair and may
actually get you out of debt. So having a reputable credit counseling agency
in mind, let's compare the options...
Here, Bad
Credit Advisor outlines the main differences between a debt management
plan (DMP) and bankruptcy:
Credit Counseling DMP
Repay debt - you must repay 100%,
Loose assets - you won't,
Get new loan after - easy when done with DMP (if you can show disciplined
timely payments),
Stays on credit report - 7 years,
Fees - Set-up fees and monthly payments,
Creditors calls - May continue,
Duration - An average DMP lasts for 48 months minimum,
Affect FICO score - No (some creditors may report your enrollment but it'll
only go as a remark),
Which debt is consolidated - Unsecured only (bills, cards),
Improve bad credit - You may when done with DMP and show timely payments.
Bankruptcy Chapters 7 & 13
Repay Debt - Debt forgiven (Chapter 7), you repay cents on the $ (Chapter
13),
Loose Assets - you may (Chapter 7),
Get new loan after - very difficult and at the highest interest rates,
Stays on credit report - 10 years,
Fees - Attorney's fee,
Creditors calls - Will stop,
Duration - Up to 3.5 months to get Chapter 7 and over 6 months to get
Chapter 13,
Affect FICO score - Yes (bankruptcy gets on your
credit report under 'Public Records' section),
Which debt is consolidated - Unsecured and secured (including house and
car),
Improve bad credit - No, you credit will worsen.
Deciding between a
debt management plan versus bankruptcy is difficult because of many
factors to consider. When a person in debt, but is making a reasonable
income, bankruptcy may not be the option to take.
In any case, one good thing that may come out of this legislation, is
that you won't have to make a tough decision... choosing between credit
counseling and bankruptcy.
For more information see these resources:
http://www.ftc.gov/bcp/conline/pubs/credit/bbcr.htm
http://www.ftc.gov/bcp/conline/pubs/credit/kneedeep.htm
http://www.cc-bc.com/fact_or_fiction.htm
(the above is only an opinion of
bad-credit-advisor.com. Please consult your attorney or accountant when
deciding between credit counseling and bankruptcy.) |
