In a rough economy it can be tempting to declare bankruptcy, especially if you have rather large debts and a low income. After all, once you’ve declared bankruptcy, your creditors can no longer pursue you for the amounts you owe. However, bankruptcy can also have negative consequences. Filing for bankruptcy can force you to surrender your material possessions and will have a negative impact on your credit rating. Debt consolidation involves filing for a new loan in order to pay off your other debts – a less drastic approach.
Filing For Bankruptcy: A Fresh Start At High Cost
Declaring bankruptcy essentially tells your creditors that you have no means of repaying your debts. If you declare bankruptcy, your debt repayments stop and your creditors must cease all attempts at collecting their money. Bankruptcy erases many of your debts, though certain debts are exempt. Filing for bankruptcy will not absolve you from your responsibility to repay court fines, money you owe for thefts or unpaid taxes, alimony, court-awarded damages from assault cases, or student loans if you’ve been out of school for less than seven years. Exemptions may vary by location, so check with your provincial or territorial government regarding which debts you will still have to repay if you file for bankruptcy.
If you file for bankruptcy, you will be required to keep meticulous records of all income and expenses for however long your bankruptcy lasts. You may be required to give up some of your possessions. You may have difficulty renting a new living space or securing student loans. Declarations of bankruptcy do show up on employer background checks, which may hinder your ability to find a new job. Bankruptcy will make it difficult to apply for a business loan, enter a new phone contract, or get a mortgage. A declaration of bankruptcy stays on your credit history for seven to ten years. Only after this period has elapsed do you get your fresh start.
Debt Consolidation Helps You Pay Your Debts
Debt consolidation works by combining all of your debts from all of your creditors into one monthly payment with one interest rate and one set of rules. A debt consolidation company will buy your debts for one set amount; this is essentially a form of a loan. Debt consolidation has several advantages. Firstly, the fact that you have only one creditor to pay means it is far more difficult to miss payments due to forgetfulness or disorganization. Consolidated debts often have lower interest rates than unconsolidated debts, which can help you to free up more money every month. Debt consolidators usually accept low monthly payments and long repayment periods, which can reduce the stress and pressure of having a tight monthly budget. Finally, debt consolidation allows you to actually pay back what you owe, which will boost your credit rating. It is important however to pay down this consolidation loan as quick as possible to avoid paying more than you have to over the lifetime of the loan.
If large debts are threatening your finances, you may be considering bankruptcy as a means of easing the strain. However, bankruptcy will ruin your credit history, force you to surrender certain possessions, and restrict your options for jobs, mortgages, and cell phone contracts. Bankruptcy should always be a last resort. Debt consolidation may allow you to pay off your debt without breaking the bank, which will help you to repair your credit history. Learn more about which debt relief option is right for you today.