Personal -
Bankruptcy vs. Credit Counseling:
What Should I Do?
Credit Counseling and bankruptcy are both ways to relieve the stress
of debt. However, they are very different and it is important to
understand both before making a decision as to which is best for you.
Credit counseling is a program designed to help those who are in a
state of debt and cannot find a solution to their debt problems. They
offer services that will allow you to work with a certified credit
counselor to devise a plan that is tailored to your specific needs and
goals. Credit counseling agencies often provide services for free and
will help to educate you about how to avoid financial problems in the
future by offering debt management classes or seminars. They do not
erase your debt. Instead they work with you to budget money so that you
can pay off the debt often times by debt consolidation. Collection will
continue while using a credit counselor, however, in most cases
companies who are owed money will try and work with you to help you
payoff your loans. Credit counseling services often help you to
reestablish credit after the loans are paid.
Bankruptcy is very different. It will completely clear your debt in
most cases and you will no longer be hassled by collection agencies and
their attorneys. There are two kinds of bankruptcy; the one that is
right for you will depend on your situation. When filing Chapter 13
bankruptcy you are able to keep property that is mortgaged such as your
house or car and are expected to repay debts in three to five years.
Under Chapter 7 bankruptcy, you must give up all property and assets
that you own. There are exceptions in some states for items such as work
tools and household furnishings. Bankruptcy will certainly clear your
debts and stop foreclosures and wage garnishments, however, you will be
unable to establish credit for up to ten years. Filing bankruptcy can
also be very expensive compared to credit counseling.
Take time and research credit counseling very carefully before
deciding on bankruptcy as it can save your credit in the long run. Most
people feel much better about themselves when they can pay off their
debt and become educated about how to stay out of debt rather than
filing bankruptcy.
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