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Debt consolidation or bankruptcy?

On Behalf of | May 5, 2022 | Chapter 7 Bankruptcy, Debt Relief

Acknowledging the need for help when your debts become out of control is essential to finding a resolution. While multiple solutions exist, one size does not fit all. Various options are out there to help consumers. Finding just the right one is paramount to getting out from under burdensome debt loads.

Debt consolidation

Consolidating debt is an option to simplify matters. Various options exist. Loans and lines of credit are common, particularly those with more reasonable terms than higher interest rate credit cards that may be at their limits.

Moving the debt to a balance transfer credit card can help control the revolving debts. Ideally, you want a card with a lower interest rate or an introductory period with no interest that usually ranges from 12 to 18 months. The goal is to pay it off before interest is charged on the leftover debt.

Home equity loans are another option that uses your house as collateral. The amount is determined by the value of the home and the balance remaining on the mortgage. While the primary benefit is a lower interest rate, further financial problems could put the roof above your head at risk.

Chapter 7 bankruptcy

While seemingly a drastic option, if not the proverbial “last resort,” bankruptcy can eliminate or significantly reduce debts. Filing for a Chapter 7 discharge first requires a means test to prove an inability to repay debts. However, a higher disposable income could remove that as an option for financial relief.

Chapter 7 is also beneficial for those without assets that generally do not need protection from liquidation. Individuals who have valuable property (cars, boats, and second homes) should find another route to resolve their financial issues, like Chapter 13 bankruptcy.

In the end, those who are significantly delinquent in paying their bills can absorb an impact on what is likely an already challenging credit score. Those with primarily dischargeable debts may see Chapter 7 bankruptcy as the best option.

Resolving financial problems is not a “one-size-fits-all” proposition. Help from an experienced attorney can lay out a customized path that results in long-awaited financial stability.

 

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