Bankruptcy and debt consolidation are two common solutions for debt relief. Bankruptcy is a legal process that frees you from your debt obligations, while debt consolidation involves taking out a loan to consolidate your debts into one monthly payment.
What is bankruptcy?
Bankruptcy is a legal declaration under which you transfer your property to a licensed insolvency trustee so that you can be released from your debts. Your licensed insolvency trustee will be responsible for liquidating your assets and advising creditors of your bankruptcy.
You must also fulfill your bankruptcy obligations. This includes attending two credit counseling sessions and sending monthly statements of income and expenses to your licensed insolvency trustee. Once you have fulfilled these obligations, you will be discharged from bankruptcy, usually between nine and 21 months for a first bankruptcy.
What is debt consolidation?
A debt consolidation loan, obtained from a credit union or a bank, reorganizes multiple debt payments into one monthly payment, usually at a reduced interest rate. Debt consolidation loans are convenient because you only have to follow one regular payment.
Choosing Between Bankruptcy and Debt Consolidation
To decide which course of action is right for your financial situation, it is imperative to consider the pros and cons of bankruptcy and debt consolidation.
Unlike bankruptcy, debt consolidation is not a public affair; this generally allows you to simplify the process of managing your debts. However, debt consolidation loans may require a co-signer and may be subject to hidden costs such as longer repayment periods, which means that you will pay for a longer period of time.
Bankruptcy eliminates your debt and allows you to benefit from creditor protection and commit yourself to a new financial start. However, you will also have to abandon many of your assets, and an initial bankruptcy will remain on your credit report for at least six years.
Ask for advice before proceeding
Both options have advantages and disadvantages, but with the advice of a licensed insolvency trustee from Lite Loan and Bankruptcy, you will learn more about the ins and outs of both processes. Schedule a free consultation today to ensure you make the most informed decision for your situation.