Bankruptcy can bring in a whole new level of destruction into your financial history. While it is an effective and legal way of getting out of debt, it leaves behind a lot of negative effects – especially on your reputation. When someone digs up that you have declared yourself bankrupt, it immediately leads to a lot of judgments on personal responsibility and financial management skills. Your filing will be placed in public records so everyone who is interested will know that you have gone through a financial crisis and was not successful in getting out of it on your own.
Before you decide to file for bankruptcy, it is highly encouraged that you look for other options first. In fact, the bankruptcy court mandates this. They require consumers to go through credit counseling before filing so the options are made clear.
Among these options is debt consolidation. Some people think that when their debts are getting out of hand, only bankruptcy with solve it. In a lot of cases, they only needed to organize their finances to achieve debt relief. All your debts may seem like a mountain but if you put everything in perspective, you may find that all of it can be easily fixed and that you have all the capabilities to pay it off.
What debt consolidation does is to simplify your debts. Instead of dealing with more than one credit account, you will combine them into a single lower monthly payment scheme. This can either be done by getting a loan, paying off everything else and concentrating on the new one. The other option involves hiring a debt counselor who will assist you in paying off what you owe. You will both come up with a debt management plan that will be presented to creditors. Once the plan is approved, you will send your payment to your counselor and they will be in charge of disbursing your funds to the different creditors that you have.
And of course, we mentioned a lower payment scheme. Most debt consolidation programs only take 5 years at the most to complete. If you can wait this long, you don’t have to file for bankruptcy. The longer payment term makes it possible for your current debt to be stretched so the monthly contributions required to complete the payment will be lowered.
While bankruptcy usually gets you out of debt faster, the means test will not make this possible for those who have a steady income. If they are earning more than the average median salary, they can end up with a Chapter 13 bankruptcy that involves a repayment plan. This plan could take a couple of year to complete as well.
If you know that you will end up with a Chapter 13 bankruptcy, you may want to forego filing. The best part about this debt consolidation is that you will not suffer the bankruptcy taint. It hardly has an effect on your credit score. This makes it easier to recover from debt because it will not compromise your ability to get financial aid. It will not hinder you from buying your home, putting up a business or making partnerships for your company. Growing your personal wealth after debt will be easier to achieve with debt consolidation.