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If you are having financial hard times, you are probably considering your options. Two of them night be bankruptcy and debt consolidation.

Bankruptcy: The Most Dramatic Choice

There are good reasons people choose bankruptcy. A 2016 study by the American Bankruptcy Institute found that nearly 500,000 people filed for Chapter 7 bankruptcy and 95.5% of them had their debts discharged. That means they walked away debt free.

The same study found that individuals who used Chapter 13 bankruptcy didn’t have as much success, but more had their debt discharged (166,424) than didn’t (164,626).

In a Chapter 7 bankruptcy, with the aid of a bankruptcy attorney, you get a fresh start by exposing all your assets to a trustee collecting for creditors. A Chapter 13 bankruptcy, for those with regular income, allows you to keep some assets and pay off your debt over time.

In both cases, a bankruptcy craters your credit report for up to 10 years because your lenders are paid nothing or a small amount. It can be very difficult to get a loan during that time. Bankruptcy can also bruise your reputation. Bankruptcy judgments are public records that any lender, or someone hiring you for a job, can easily find. The fallout can chase you for long time.

Other Options

If you can afford one of the less extreme options associated with debt consolidation, the Federal Trade Commission recommends you use a credit counselor with a legitimate nonprofit organization accredited by the National Foundation for Credit Counseling (NFCC).

An accredited nonprofit counselor should provide a 30-40 minute counseling session that includes creating a budget and examining your monthly income and expenses before recommending a solution.

Credit counselors at nonprofit agencies typically offer one of three fixes for the problem: debt management plan, debt settlement or, if the situation has escalated beyond repair, bankruptcy.

The other solution is a Do It Yourself approach that would include a debt consolidation loan.

Debt Consolidation Loans

With this solution, you apply for a debt consolidation loan from a bank, credit union, or online lender and, if approved, use it to pay off all your credit card debt. That leaves you with one payment, not five or more (the average American has five credit cards).

The interest rate on this loan is typically lower than that on many if not all of the original cards, giving you a lower monthly payment. But to obtain this lower interest rate, the loan must be secured by your assets, usually home equity, putting your home at risk if you fail to meet obligations.

Another disadvantage is you’re opening a new line of credit, which can affect your credit score.

Carolyn Secor P.A. focuses its practice in the areas of Bankruptcy and Foreclosure Defense in Clearwater, Florida. For more information, go to our web site or call 727-335-7151.