Every day, individuals and families are forced into bankruptcy simply because
there is no other way out of their financial distress. It is important to
realize that, before having to file for bankruptcy, every possible option should
be explored to help avoid the single most damaging blemish that a credit report
can possess.
Companies that offer debt management, also known as debt
relief, provide special programs to help those eligible to repay their debts
without having to file for bankruptcy. Many people assume that just because
their payments are already late and their credit is already bad, bankruptcy
cannot possibly hurt them. However, nothing could be further from the truth.
Bankruptcy is severe and is only for those who have exhausted all other efforts.
When you file for bankruptcy, your credit report will reflect the filing for up
to 10 years. Whenever you apply for a credit card, a mortgage loan or even apply
for a job, they will know that you filed for bankruptcy.
So, how will
debt consolidation or debt settlement services prove to be more beneficial?
Quite simply, either of these methods will show your attempt to repay a debt and
will only be reflected on your credit report for up to 7 years. With a debt
consolidation service, most creditors will begin reporting your account as
current within months of enrolling in a program. A debt settlement notation will
appear as "Settled account" and will show future lenders that you repaid your
creditor(s) according to a mutually agreed upon amount.
Now that we have
explored the long reaching effect of debt management and bankruptcy, take a
moment to consider the immediate differences of each. When you enroll in a debt
consolidation or debt settlement program, you are simply picking up the
telephone and speaking with a credit counselor about your finances. If approved
for a program, you will sign a contract and payments will be deducted from your
bank account according to the agreement. If you file for bankruptcy, you will be
required to disclose every asset that you own, your income and expenses. If you
own more than you are permitted to keep according to your state's exemption
laws, you may be forced to surrender it to the bankruptcy court who will
liquidate the item(s) to repay creditors. In addition, you are required to
appear for questioning by a court-appointed trustee hired to oversee your
bankruptcy case. When you look at the immediate differences between debt
consolidation or debt settlement and filing for bankruptcy, it's obvious that
the latter should only be chosen as a last resort.
Debt consolidation is
designed to lower your monthly payments and interest rates in an effort to make
your budget more feasible. Debt settlement, on the other hand, is a fast and
permanent solution to your debt providing you have the funds available to
negotiate a fair amount. Most debt management companies will conduct a brief
telephone interview, evaluate your situation and explain what options are
available for your own individual situation. There is no one universal method
that works for everyone, which is why debt management is a uniquely customized
program that is as individual as the debtors themselves. Choosing the right debt
relief program is all about recognizing the need for help and not being too
proud to ask for it.
