When faced with insurmountable debt burden, most people find it hard to decide which way to go. While bankruptcy promises you a fresh chance of rebuilding finances, debt management options get you out of your debts with ease. But answer to the confusion depends on the kind of circumstances you are in. So, before you choose your debt relief option, it is important that you understand the pros and cons of both debt management and bankruptcy in detail.
Debt Management
If your debts are taking a toll on your finances then debt management can be a great way to manage your debts along with your finances and get out of your obligations. In a debt management program, a designated third party will assist you in repaying your debts. There are several debt relief companies that offer debt management programs. These companies not only help you get out of your obligations, but also offer credit counseling services that aim at making you financially responsible so you can keep yourself from getting into further debts.
On enrolling with a debt management company, the company will review your debt situation and then get you enrolled in a suitable debt relief program. Through debt management program the company will negotiate with your creditors regarding the repayment of your loans. Then the company will create a suitable repayment plan for you, so you pay off the obligations comfortably.
Bankruptcy
Bankruptcy is court-based procedure and should be the last resort for any debtor knee-deep in debt. When all the debt relief options fail to resolve the financial catastrophe you have landed in, you should consider bankruptcy.
Filing for bankruptcy is often more complicated than enrolling in a debt management program. It is mainly because bankruptcy procedures are controlled by the stringent Federal Bankruptcy Code. You can file personal bankruptcy either under Chapter 7 or Chapter 13 of the Federal Bankruptcy Code. While in Chapter 7 bankruptcy, your non-exempt assets will be liquidated by the court and the funds will be used to pay off your creditors on a priority basis, Chapter 13 will get your debts restructured to help you pay off your debts easily.
However, bankruptcy filing should be done very carefully; otherwise your bankruptcy application might get rejected by the court.
Debt Management versus Bankruptcy
The following are the detailed pros and cons of both debt management and bankruptcy:
• Bankruptcy is a complicated court procedure, while debt management is comparatively easier to deal with.
• Bankruptcy damages your credit score for a period of about 7 to 10 years depending upon the kind of bankruptcy you file for. Debt management does hurt your score but temporarily. As soon as your debts get paid off, your credit score is boosted.
• The scars of bankruptcy on your credit report often thwart your future potential for getting further loans. But debt management in a way makes for a good credit report once your debts are paid off.