You're at your wits' end with creditors calling and threatening at all hours. You hate to be evasive with friends and family, but your financial situation is causing problems. You're ready to file for bankruptcy… or are you? Before filing for bankruptcy, you owe it to yourself to consider debt help from a credit counseling service. Here's a quick comparison of the two routes you can take.
Credit counseling features and benefits
Accredited credit counseling services review your finances, help you design a budget, and develop a repayment plan approved by your creditors. Depending on the amount you owe, your plan can take a few months to five years to complete.
- Repayment plans negotiated through credit counseling don't reduce the amounts you owe on credit card debt but may reduce finance charges and fees to help them from growing as quickly.
- Credit counseling services cannot erase or alter negative credit reporting based on past payment behavior. However, creditors may agree to report payments made under your credit counseling plan as "paid as agreed" even if you're paying less than the monthly minimum payments.
- If you opt for a debt management plan, you can consolidate all of your credit card payments into one monthly payment through credit counseling services. They'll collect one monthly payment from you and distribute funds to your creditors per the terms of your repayment agreement.
- Credit counseling services usually require closing all active credit accounts as a condition of your credit repayment plan and cannot guarantee you'll qualify for new credit upon completion of your repayment plan.
Bankruptcy features and benefits
The legal process for filing for bankruptcy protection and receiving a discharge of your debts can take a few months or more. When your bankruptcy is filed in court, your creditors must stop debt collection efforts.
- All creditors notified of your bankruptcy will close your credit accounts.
- Unsecured debts, such as credit card debts, are reduced (under Chapter 13) or eliminated (under Chapter 7) in bankruptcy. Bankruptcy cannot indefinitely prevent foreclosure or repossession of collateral for secured loans, such as car or home loans.
- Bankruptcy is a legal action reported on your credit reports for up to ten years. A bankruptcy seriously damages your credit score and can negatively impact your ability to get credit, find a job or rent a home for years.
Bankruptcy can help you recover from financial disaster, while credit counseling services provide the education, support and negotiating power if you need temporary debt help.
About the Author:
Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.