If you have been accumulating debt in the past few years and are now buried in liabilities, you might be contemplating between bankruptcy and debt consolidation. Filing for bankruptcy is recommended when creditor negotiation is unlikely, or you are unable to pay creditors a fraction of your debt, if anything at all. Bankruptcy can be an instrumental avenue to explore as you may be able to eliminate a significant portion of your debt. Debts such as medical bills, credit cards, judgment liens, pending lawsuits, and sometimes even past due taxes can all be wiped out. In the end of the bankruptcy, the shackles are off and you are granted a fresh start.
Debt consolidation is not recommended as most plans are rarely successful and fail after about a year. The creditors who agree to these plans are typically after just about every last dollar you have. Moreover, the companies and organizations that provide debt consolidation services are often untrustworthy and shady. In the past few years, numerous debt relief companies across the country have been criminally charged with scheming individuals out of their hard earned money. Most importantly, take note that the statue of limitations for these creditors to collect on the debt is typically six years.
If you begin making payments in the debt consolidation plan, you run a high risk of reviving the debt and waiving the statue of limitations defense. If some your debts are approaching that six-year mark, then wait until those old debts are deleted from your credit report entirely.
Depending on the type of debt and the amount of debt, a bankruptcy may not be the best option. If you are overwhelmed with debt, you should consult with an experienced bankruptcy lawyer before you make any rash decisions on your own. Most lawyers offer free consultations, whether in person or by phone.
Obtaining Credit After Bankruptcy
If you decided to file for bankruptcy, you are probably wondering whether you will ever be able to obtain credit again. If you have filed bankruptcy and are still awaiting a discharge, you should wait until your Chapter 7 discharge is granted before you start applying for credit cards. Bankruptcy court and the trustee assigned to your case frowns upon debtors obtaining new credit during the pendency of their bankruptcy, as they don’t want to see you digging a deeper hole for yourself than the one you are currently trying to climb out of. Also, it is extremely unlikely that any creditor will loan you money before you receive your discharge order.
If you have already been granted a discharge, you can start trying to rebuild your credit. Whenever I follow up with my clients, they tell me that their mailbox is full with credit card offers shorty after their bankruptcy is complete. Most of these credit card offers carry high interest rates and annual fees. However, the reality is that in order to build credit, you need to use your credit. Pick the best offer you can get and use the card for emergencies and things you can actually afford. No shopping sprees! Try to use your credit card in the same manner that you would use your ATM bank card – do not spend more than what you have in the bank and use your best efforts to pay the balance in full every month. In due time, slowly but surely you will be able to rebuild your credit.