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HomeBlog BlogBankruptcy Vs Credit Counseling
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Bankruptcy Vs Credit Counseling

July 11, 2012 by Adam Tijerina

There are many options available to those who are struggling with debt. One of your options is to declare bankruptcy. Another of your options is to look for a qualified credit counselor. Which of the two options would work best for you? Let’s take a look at declaring bankruptcy versus going to a credit counselor.

Why Would You Declare Bankruptcy?

Bankruptcy is an attempt to have your debts legally discharged. Having your debts discharged relieves you of an obligation to pay your past due balances.going bankrupt

Debtors can choose to file for Chapter 7 bankruptcy, which is a liquidation of your debts. Your other option is to file for Chapter 13 bankruptcy, which is a restructuring of current debts. The type of bankruptcy you declare will be decided by a judge. Your best option is to be approved for Chapter 7 bankruptcy which completely discharges your debts.

Filing for bankruptcy as a way to obtain debt relief can be an option for those struggling with secured debts. Debtors who have an auto loan, mortgage or second mortgage can find relief through bankruptcy protection. Your creditors are unlikely to settle secured debts through consolidation.

Why Would You Choose Credit Counseling?

Credit counseling is your best option if you are serious about getting rid of your debt. A qualified credit counseling service can help you restructure your debt without serious consequences for your credit score. The trick is to find a credit counselor who will care more about your needs than your money.

credit counseling servicesA credit counseling service will set up a debt management plan for you. Debt management plans will not lower your interest rates or your balance. However, following your plan allows you to get out of debt on your own. You will not need settlements or negotiations.

Working with a third-party credit counseling service has other benefits as well. You will no longer have to deal with creditors contacting you regarding your debts. This is because your counselor will now have power of attorney over your debt. Enrolling with a counseling service also shows creditors you are working on paying back your debts. Your creditors will go easier on you if they see you are working on paying your outstanding balance.

Impact Of Bankruptcy On Your Credit

Bankruptcy has the most impact on your credit compared to other debt relief options. Your credit is going to be shot for at least a year. This is because your credit score is going to drop at least 100 points simply for having your filing approved. Lenders will also be able to see this on your credit report for 7 or 10 years based on your type of filing.

Another side effect of bankruptcy are the inaccuracies that may remain on your credit report. Creditors may not always correctly report your accounts as discharged. An outstanding balance may remain unless you check your credit report immediately after your bankruptcy goes through.

Debt collection agencies may see this outstanding debt on your credit report. This could trigger more phone calls, letters and trips to court. Bankruptcy will do you no good if it won’t help you start the process of cleaning up your credit. You are the only one who can take action to make sure creditors live up to their end of the bankruptcy agreement.

Impact Of Credit Counseling On Your Credit

Going to credit counseling will do mostly good things for your credit score. Opting for a DMP will increase your score because you are finally making your payments on time again. You also avoid your creditors noting your use of a debt relief service on your credit report. Even if they do, FICO will ignore this when calculating your credit score.

Credit counseling can be a boon for those who have poor credit scores. Your old accounts will be brought back to current under the terms of most plans. Clearing up past due bills can raise your credit score fast. Getting accounts out of collections raises your score even more.

Lowering your debt-to-income ratio is another way a DMP will help you out. Credit utilization levels will also go down as you repay your credit debts. You can see how using a credit counselor can have many positive benefits for your credit score.

Credit counseling is an option for debt relief. You can have your secured debts included in any DMP you enroll in. Credit counseling leaves fewer long-term marks on your credit report. Bankruptcy should only be used when you have gone through the other credit solutions. There are many ways to reduce your debts. National Debt Relief offers a free debt analysis to go over your choices.

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Adam Tijerina
Adam Tijerina

Adam Tijerina is a personal finance expert for National Debt Relief, a BBB A+ accredited business offering debt settlement services since 2009. Adam knows a thing or two about debt resolution after successfully settling $43,250 in credit card debt on his own. He has also co-authored two books about overcoming adversity and has been featured on Credit.com and USNews.com. Adam holds a Bachelor’s Degree from Trinity University and lives in Texas with his wife and four children.

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By clicking "Get Free Quote", you agree that the phone number you are providing may be used to contact you by National Debt Relief (including autodialed and prerecorded calls, as well as text/SMS messages). Msg. and data rates apply, and your consent to such contact is not required for purchase.
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Easy National Debt Relief Caller: April Transcribed WE 1/17/2021 April: Our call may get recorded. What financial concerns had led you to seek out National Debt Relief's services? RILEY: I guess just not being able to pay my debt. April: What had you choose National Debt Relief over other companies that provide the same service? RILEY: Really just researching online. Everything that I had read about them seemed pretty positive. April: What service or program did National Debt Relief help you to get through? Like a payment or consolidation program, anything like that? RILEY: I just do bi-monthly payment to them, and then they reach out to my debt account, I guess, that negotiated everything for me. So, it’s pretty easy. April: Can you walk me through the process of what you went through to enroll for the services? RILEY: God, it's been like two years, so I kinda don't really remember. I just had to fill out some stuff online and then talk to them on the phone. I had to give them all my account information and everything. And then they worked out a payment plan for me. And they communicate with me like once a month with my statement. And whenever they have communication with my accounts, they have called me and had me verify before they've done anything and whatnot. April: That sounds like a really good service there. RILEY: Yeah. April: At this point, are you still in the program or have you completed it at this point? RILEY: I'm almost done. It was, I think, a two-year plan. So, yeah, I think I just have one other account that I'm paying on. April: How about any interactions with the negotiators? You said they will call you at any time that there was maybe an account activity that they want to confirm with you first. RILEY: Uh-huh [yes]. April: So, how is the interaction with them when they reach out to you and you're able to discuss with them? How is that interaction? RILEY: It's been super easy and positive for me and relieves a lot of stress and anxiety. So, yeah, it’s been very easy. April: And then how has National Debt Relief been able to work with you in terms of your payment plan? RILEY: I basically just told them what I could afford, and they figured it out. And they have offered COVID relief if I need to stop payment for the time being or whatever. Fortunately, I haven't had to do that. So, I don't really know how that would have worked, but that was an option. But they're always like, “Call us if you can't make payment, and we'll figure something out for you.” April: What are your thoughts about the cost in relation to the quality of the service you received? RILEY: I'm really happy with the program. [unclear 0:04:22] as far as I know. I don't have any complaints. April: Has working with National Debt Relief impacted your life? RILEY: Yeah. April: How would you say that it's impacted your life at this point? RILEY: It just has relieved a ton of pressure and stress, financial stress, anxiety. I'm not living paycheck to paycheck now to pay my interest, so that’s been nice. April: Have you had other experiences to National Debt Relief that perhaps you want to share with us in regards to your experience with them? RILEY: No. I think that’s it. April: On a scale of 1 to 5, where would you rate National Debt Relief, if 5 stars is that you recommend to your friends and 1 star is you're very dissatisfied? RILEY: I would say 5. April: In a few words, how would you summarize overall the National Debt Relief in your experience with them? RILEY: Just easy and stress-free. April: Would it be okay for us to also utilize your commentary as a review that we can publish for National Debt Relief? And that would go to public webpage here, but that's to help other consumers make good choices if they're also in the same market. RILEY: I guess. Would it have my first and last name? I don’t— April: Only the first name. And if that's an issue, we do the first letter. RILEY: [unclear 0:06:03] you want my full name. April: Not at all. So, we only do the first name as an option. We can also do the first letter. So, it's really up to you on which option you prefer. But just the first name. We don't do last name. We don't post anything personal like your phone number. RILEY: Yeah. I think you can use my first name. April: I do offer a link that we can also send you with a direct link to your review. So, once it's published, you also get to see directly. Is that something you would like to have sent to your email? RILEY: No.

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