While each individual case is different and no two situations are identical, you may want to consider bankruptcy before traveling down the path of debt consolidation. There is nothing inherently wrong with debt consolidation, but it is often a process that drags on for years. Bankruptcy, while having an effect on your credit report, can be a much quicker solution. There are several benefits to choosing bankruptcy aside from expediency, and a few of them have been listed and explained below by our Dothan.
- Credit score: One reason many debtors choose debt consolidation is because they are afraid of irreparably damaging their credit score. While filing for bankruptcy does appear on a credit history report, and will stay on the report for up to ten years, debtors are often able to improve their score the year after filing because they no longer have the burden of debt.
- Costs: Debt consolidation and bankruptcy both cost money. There are service fees for one and legal fees for the other, and both can accumulate. Because bankruptcy is typically a much shorter process, however, there is less of a chance for the costs to build over time.
- Taxes: When a debt is cancelled by the bankruptcy court, the bankrupt individual does not have to pay any taxes on the cancelled debt.
- Settlement agreement: The way that debt consolidators help an individual is by offering the creditors a settlement agreement to forgive a certain amount of debt. Bankruptcy courts involve only a decision by the court, which all creditors have to abide by. There is no need to negotiate with creditors, and no chance of creditors denying settlement offers.
- Chapter 13: A Chapter 13 bankruptcy is one in which the debtor is allowed to keep all assets in return for paying back the debts over time. This is often referred to as debt consolidation bankruptcy.