And which is right for you
For many who are looking to get rid of debt that is threatening their home, livelihood, and sanity, bankruptcy is often heralded as the gold standard to debt management. With two chapters for consumer bankruptcy and alternative options for business owners, it seems like a logical solution to start there.
However, bankruptcy is not an option for everyone. Sometimes there is a cost barrier to file, sometimes individuals want to spare their credit score, and sometimes the thought of filing for bankruptcy is simply impossible to fathom.
As such, there are a few other debt management options available that may help to varying degrees of success. To find out more, keep reading below.
Credit Counseling
Just as it sounds, credit counseling agencies offer education and budgeting help for individuals who are unable to pay their debt. Credit counselors will sit with an individual, assess your debts, credit report, and income, then develop a debt management plan to help you budget for monthly payments.
For individuals suffering with debt now, this might seem like a meaningless non-solution at worst, a waste of time at best. This is due to a misconception in what credit counseling is actually designed to accomplish.
Sometimes when people are in debt, it becomes very challenging to look at their situation objectively. As such, there are sometimes alternative solutions to budgeting and consolidating their expenses they may not have noticed. These could potentially make their payments manageable again with few adverse effects.
When this is possible, it creates a win-win situation: creditors will still receive payment and individuals will not destroy their credit.
Debt Consolidation
For those with several loans of lines of credit, interest rates and monthly payments can become a real problem. What often happens is that due to the various differences from one credit company to the next, interest rates all over the map, wasting money in the long term.
As such, debt consolidation is a way to borrow money to pay off all your outstanding debts. Then, simply pay back your debt consolidation loan in monthly installments.
Not only does this make it easier to keep up with payments, but it often can help individuals avoid bankruptcy when the increased interest of multiple lines of debt is what threw their budget over the edge.
Debt Settlement
The riskiest of the three options here is debt settlement. As far as debt management goes, this is often a wildcard— unreliable at best, but incredibly powerful when it works.
Debt settlement is a procedure where you seek to eradicate most of your debt through heavy negotiation with creditors. Most often this is done with the aid of a debt settlement company and takes place for a period of time. In these situations, creditors are usually reminded that should an individual file for Chapter 7, they might not get any reimbursement at all— especially if that debt is unsecured.
This often results in medical debt, credit card debt, and many other outstanding payments being completely forgiven. This is shockingly different from both Chapter 7 bankruptcy and Chapter 13 bankruptcy where you will either be required to liquidate assets or enter into a repayment plan.
The catch with debt settlement however, is its abysmal success rate of 10%.
With a process that takes 24-28 months total to complete, this means not only could you get sussed in the process, upon failure you will be responsible for your original payments in addition to the interest accounts accrued over the last couple years.
For many, the risk simply isn’t worth the potential payoff.
Experienced Ohio Bankruptcy Attorney
As a bankruptcy attorney, I have worked with many individuals suffering from unmanageable debt. This has led to practice, training, and personal experience in many of the challenges and solutions faced for people who need help regaining financial control. Need a debt consultation, we are here to help. Reach out by giving us a call at (216) 241 2510 to speak with an attorney about your case. It might help you more than you think.