Bankruptcy

Debt Consolidation

Pros:

• Upon filing immediately stops all creditors from all actions underway to collect on your debt to them.
• Protects most of your personal property – in some cases even your home.
• After bankruptcy, all eligible debts are considered discharged.
• Some lenders and credit card companies consider a recent Chapter 7 bankruptcy as a good risk since they know that you can’t file again for another seven years.

Pros:

• Can reduce your payment.
• Can save you money on interest.
• Opens up cash flow.
• Opens up credit previously maxed out or close to it.
• When done by a reputable company, does not pose any more financial burden.
• One payment per month instead of running around putting out this fire and that fire, or swapping debt around on various cards.

Cons:

• Credit card companies almost always automatically cancel your cards upon filing.
• Some debts cannot be discharged in bankruptcy and are unaffected by the filing.
• Bankruptcies hang around on your credit report for seven to ten years, making it difficult to get a mortgage or other forms of credit.
• You can only file for a Chapter 7 bankruptcy once every seven years.
• The bankruptcy court might decide that you appear to have run up a pile of debt in bad faith and then filed for bankruptcy If this is the case, they will not be amused.
• Bankruptcy is a legal procedure best handled by a trained attorney.

Cons:

• Some lenders have been known to look askance at consolidation loans.
• It does not remove delinquent payments or collections from your record.
• Unless you reform your spending, you can pick up hitting the plastic where you left off.
• Unless you’re careful about the paperwork, you can end up stuck with a lot of upfront fees and monthly fees stuck onto that “affordable payment.”
• If some portion of the debt is forgiven, your creditors can issue a 1099 to you, meaning that portion of the debt forgiven counts as taxable income.
• Shady operators can sell your loan to another lender.