There are a lot of people who tend to find filing for bankruptcy a more agreeable option in comparison to enrolling into a debt consolidation program or taking a debt consolidation loan. For some people it appears to be a more beneficial and from many points of view less troublesome; however, this is not exactly so. Bankruptcy can seem appealing as the connotation of the word immediately recalls the idea that all the person’s debts will be waived off without any consequences. However, things are not that simple in reality and there is much more to bankruptcy than just claiming insolvent.
In the situations when a person faces multiple payday loan debts that he or she is unable to repay is generally regulated by the procedure of debt settlement. As it has already been mentioned, there are two options here – a debt consolidation program or a debt consolidation loan. Both of these ways allow a person to reduce the monthly repayments to a bearable amount. It is possible to reduce the total amount of loan up to 60% in some cases, which is in any way beneficial. Besides, both of these options are advantageous in terms of credit score; which is not possible to say about filing bankruptcy.
First thing to understand about bankruptcy is that it is a court procedure. There are two types of bankruptcy that a debtor is allowed to file. According to the Title 11 of the Federal Bankruptcy Code they are personal bankruptcy under Chapter 7 and personal bankruptcy under Chapter 13.
The first form of bankruptcy is under Chapter 7 and it presupposes that according to the decision of the court all the non-exempt assets of a debtor are sold in order to cover the debts. This means that if a person ahs got a car is possession, it will get sold to cover the debts. The rest of the debts will henceforth be cleared.
According to the Chapter 13 a person is allowed to keep some of the assets but, in fact, all his or her existing liabilities go through reorganization. A person is offered a long-term repayment plan that allows more financial freedom in budgeting.
It is effective and for many people appealing way to solve their financial problems; however, not everyone takes into consideration the fact that filing a petition for bankruptcy is a long and more complicated procedure than debt settlement. Besides, it is much worse in terms of a person’s credit report state.
For the majority of people a positive credit score is a very important condition and bankruptcy can spoil it pretty badly. You can get your score lowered up to 250 points and you will have a remark about bankruptcy in your report. The latter stays in a report for 10 years on average and this is the reason why a person will be ineligible to take any more credits during this period.
It is strongly advised to apply for debt settlement procedure instead of choosing bankruptcy as the former has no such strong effect on a person’s credit score in comparison to the latter. In all cases, bankruptcy is advised as the last resort when there are no other options.
Debt settlement should be preferred above other options, if there is a choice. This procedure helps to get rid of the debts in the most effective way and does not presuppose parting with one’s possessions and property as well as having no negative impact on one’s credit score.