Is Debt Consolidation Better Than Bankruptcy?

Is Debt Consolidation Better Than Bankruptcy?

Despite the claims made by some people that flatly either debt settlement or bankruptcy as the better option in all cases, in reality it all depends on your personal financial situation and circumstances. For some people, especially those with a stable income and a lot of property, debt settlement may be the better options; whereas for people with no real property beyond that which would be exempted under bankruptcy proceedings and without a stable income, bankruptcy might be the better move to make. Put simply, there is no 'one size fits all' answer that necessarily applies to all people in all circumstances.

Debt settlement generally involves negotiating with your creditors and agreeing to pay a set amount of money fairly quickly in exchange for having the remainder of the debt written off. Whether you choose to negotiate directly with the creditors yourself or hire a debt settlement company to represent you, the key variable is usually an ability to pay a substantial amount of the debt owed quickly. For this reason debt settlement makes a lot of sense for people who fell into deep debt due to some unfortunate occurrence like losing a job or suffering a medical disaster, but are now getting back on their feet financially.

Bankruptcy, or at least Chapter 7 bankruptcy, is usually seen as a measure of last resort and carries considerably heavier consequences to your personal credit. However, contrary to some popular misconceptions, you do not lose your home or primary car through bankruptcy as a number of items are exempted from liquidation. Therefore if you do not have a lot of property that can be taken and liquidated and you do not really have the money to pay off the debt at all, bankruptcy may make more sense. However, bear in mind that not all debt is eliminated through bankruptcy and since the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 quite a few of the old benefits to bankruptcy have been removed.

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