Debt Consolidation Benefits Explained as Bankruptcy Filings Continue to Rise

[Apr 15, 2009.]

 

Bankruptcy Filings Increase By 46 Percent Last Month
According to federal court records analyzed by the Associated Press, bankruptcy filings increased by 46 percent compared to March 2008 with about total 130,831 filings. As consumers struggle to handle credit card debts, job losses, and medical bills, many have chosen the route of bankruptcy to escape their debts. With unemployment rates nearing 8.5% in March, over 663,000 jobs were lost during this period nationwide.  In the first quarter of 2009 alone, bankruptcy filings have shot up about 35% -- and about 6% when compared to the last quarter of 2008.

Consequences of Filing Consumer Bankruptcy
Although bankruptcy can help consumers get out of debt and provide some form of debt relief, there are many consequences that soon follow after bankruptcy. Most notably, bankruptcy filings typically remain on one's credit history for up to 7 years. With a bankruptcy on one's credit history, it becomes harder to obtain financing and also much more expensive. Additionally, not all bankruptcy filings completely eliminate debt. In particular, a Chapter 7 filing will eliminate most debts whereas a Chapter 13 filing involves a structured debt reorganization plan. When most people think of bankruptcy, most automatically think of a Chapter 7 filing where most debts are discharged and assets are liquidated. However, Chapter 7 filings are reserved for those who meet certain income eligibility requirements and not all will qualify. In many cases, debt consolidation loans prove to be a better debt solution as they provide more flexibility and long term benefits.

Which Is Better, Debt Consolidation or Bankruptcy?
If consumers are focused on their long term goals of debt elimination, debt consolidation loans are usually the favorable alternative. Realistically however, consumers cannot expect the same amount of debt forgiveness from debt consolidation as they do with typical bankruptcies. In a debt consolidation program, debts are simplified into more manageable monthly payments but are expected to be repaid. Fortunately, if consumers are able to stick with their consolidation loan, their credit history will be in much better shape than if they chose the route of bankruptcy. While bankruptcy does have its benefits, most will agree that it should be regarded as a last choice alternative. Although there is life after bankruptcy, it is more difficult than people realize especially due to the severe credit consequences. Additionally, some debts such as student loans and back taxes are not even eligible under the coverage of bankruptcy.

For those considering bankruptcy, it will be worth the effort to explore other alternatives such as debt consolidation loans and programs. For more detailed information, be sure to visit our site's resource directory to locate professional help in your area.

"Bankruptcy Filings Rise" [Wall Street Journal]

"Bankruptcies Surge" [Associated Press]

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.