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Bankruptcy versus Debt Consolidation: Which is Right for Me?

Chances are good that if you are considering bankruptcy, your credit score may be lower than you would like. If your credit score is not good, then you will have a difficult time finding a lender willing to consolidate your loans. Does this mean that you have to file for bankruptcy? Not necessarily. But your options are probably fewer than you imagined. 

The chances of a debt consolidator offering a loan to someone who has subpar credit is low unless they recently acquired a new job. So, if you are reading this, debt consolidation may not be in the cards for you. On the other hand, if your credit is sterling and your debts are related to temporary setbacks, then you may qualify for a loan. Lastly, if you have a 401(k), IRA, or some other retirement fund, you may be able to borrow against it to pay off the debts and then repay the IRA at a decreased interest rate. However, you will need collateral to back the loan. 

What is Debt Consolidation?

Debt consolidation is when a lender offers you a loan to repay other creditors. Essentially, they purchase all of your debt and then charge you an interest rate that is (hopefully) lower than the one you were paying. You can then make a single payment to the debt consolidator at a lower interest rate than what you were paying.

Purchasing debt is risky, and not everyone who goes through a debt consolidator will be able to pay. Debt consolidators, therefore, avoid risky debt and tend to offer loans only to those with good credit. It can be quite difficult to get your loans consolidated if you do not have great credit.

Consolidation or Bankruptcy?

If you need to file for bankruptcy, you need to file for bankruptcy. You will generally be forced into that position due to creditor lawsuits, threats of garnished wages, and more. Your best bet is to file as soon as a creditor announces a lawsuit against you to avoid the potential consequences of the judgment. Filing for a Chapter 7 bankruptcy allows you to discharge the debts against you, with the major consequence being a temporary hit to your credit score, which you will be able to rebuild over the next seven years. 

Those who can get consolidation loans may prefer not to take the hit to their credit score. However, you would not necessarily lose your home or car because you filed for bankruptcy. The other alternative is a home equity loan. You can borrow against the equity of your home to repay creditors at a reduced interest rate, but if you cannot make the payments, the bank will take your home. 

Talk to an Indiana Bankruptcy Attorney Today

Chris Arrington helps those in major debt file for bankruptcy protection. Call today to schedule a free consultation, and we can begin discussing your situation immediately. 

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