Bankruptcy May be the Best Option

With the housing-market crash and resulting economic downturn, hundreds of thousands of Americans currently find themselves in significant amounts of debt. To meet the demand for help from struggling consumers, some private companies offer debt management counseling, debt consolidation and debt management plans, also called DMPs. However, such programs and services cannot offer the same benefits as good, old-fashioned bankruptcy. Be sure to look at these programs with careful scrutiny and examine all the facts.

Debt management and consolidation

DMPs are very popular and consist of budgets and plans as to how the debtors will pay their way out of debt within the next three to five years. A DMP is created after a debtor and a counselor complete a comprehensive review of the debtor's financial situation, which includes analyzing the debtor's assets, debts, income and expenses.

A counselor may also work with creditors to reduce or eliminate the debtor's interest payments so payments go toward principal instead of interest. While analyzing your finances and establishing a budget is always a smart move, a DMP will have little to no positive impact on a credit score. In fact, if you miss a payment your credit may continue to suffer. And, interest continues to accrue without any sort of legal order (i.e., bankruptcy) in the mix.

Debt consolidation generally involves a loan that combines all of one's debts into one lump sum with a lower interest rate. The lower rate results in a lower monthly interest rate, but what is not advertised up front is that the lower rate is in exchange for a longer loan term. The longer loan term means more of a chance of missing a payment and dinging your credit again. So while the monthly payment is reduced, the debtor ends up paying more overall to pay off the full loan amount. And, again, interest and fees can be accruing the entire time. Not to mention, a lot of the money you pay in at the beginning does nothing to resolve the debt but only pays the company for its services.

Nine times out of ten, six months into a debt consolidation or settlement program, debtors get extremely frustrated and turn to bankruptcy at that point. But, at that point, you have lost another six months. Make a smart, economical and time-effective choice the first time and you can get to rebuilding your credit and moving on much faster.

Bankruptcy

Bankruptcy is a much better approach to improving your credit score and it comes in two forms. A Chapter 7 bankruptcy prevents creditors and debt collectors from harassing the debtor and allows for a discharge of nearly all credit card and medical debt. A Chapter 13 bankruptcy also prevents creditor harassment, but sets up a three to five year debt repayment plan. The choice between the two depends on the debtor's individual financial situation.

A Chapter 13 bankruptcy filing will usually stay on a consumer's credit report for seven years, while a Chapter 7 bankruptcy filing generally remains there for up to 10 years. Though a bankruptcy will remain on the debtor's credit report, bankruptcy gives control back to the debtor by wiping the slate clean (mostly) of debt and allowing him or her to rebuild credit. The debtor will not be constantly dragging old bills and accounts with him or her in the attempt to improve his or her credit score. Bankruptcy truly is a fresh start.

If you or a loved one is suffering under the pressure of debt, contact an experienced bankruptcy attorney to discuss your financial situation and the benefits of filing Chapter 7 or Chapter 13 bankruptcy. Despite the claims of debt management and consolidation companies, bankruptcy is likely your best option to start anew.

Article provided by Trepeck Bane PC
Visit us at www.chicagodebtsolutions.com

---

By: Article Alley

Free Article Directory: http://www.jumparticles.com

Copy and Paste Link Code:
<a href="http://www.jumparticles.com/1004109">Bankruptcy May be the Best Option</a>

Article ID 1004109
This article has been viewed 1257 times