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The Alternatives to Bankruptcy
As personal debt-loads continue to spiral out of control for all too many Americans, overwhelmed borrowers find themselves searching for some solution to what seems like a never-ending succession of bills and past-due notices. Naturally, the most well-known answer is still declaration of bankruptcy, but recent changes in legislation has rendered bankruptcy protection more difficult to achieve and far more potentially ruinous even if successfully undertaken. Other alternatives to Chapter 7 and Chapter 13 protection have risen the past few years – all of them different and with various advantages and drawbacks. This article takes a look at the new industries and describes the best and worst features of each.
An increasingly popular alternative to tradition forms of debt management, the debt settlement industry looks to greatly reduce borrowers debt loads without having to declare bankruptcy. In the simplest explanation, debt settlement professionals undertake negotiations with credit card companies in the hope of convincing the creditors to lower the debtors’ overall balances in exchange for a streamlined payment program – typically under sixty months. Unfortunately, as with bankruptcies, unsecured debts (like car loans or home mortgages), alimony payments, and most forms of tax liens wouldn’t be affected. Still, it’s a way for borrowers to successfully rid themselves of debt in a quick and easy fashion without subjecting themselves to the dangers of bankruptcy and with relatively little impact upon their credit report.
· Consumer Credit Counseling. On the face of things, Consumer Credit Counseling programs look to be quite similar to debt settlement negotiations. Consumer Credit Counselors do talk with credit card companies in attempts to lower payments, after all, but the CCC professionals also charge consumers a fee for their services and, in most situations, don’t reduce balances but instead target interest rates. The negative effect upon credit reports and FICO scores are far more ruinous as well, but the most troubling aspect of Consumer Credit Counseling is rarely mentioned during their many television and radio commercials. The Counselors don’t tend to advertise that they are generally also paid fees by the credit card companies themselves, and, as a result, sometimes offer debt management plans that actually increase overall loan balances through the course of the payment plan. Government agencies have begun studying the entire industry to ensure that consumers are treated fairly.
· Loan Consolidation. Another much advertised alternative to bankruptcy, debt consolidation groups different types of debt into a single loan that’s generally lower than what credit cards would offer. In addition, the consolidated loan tends to be extended for a repayment plan that allows lower monthly payments. However, by the same token, extending the repayment schedule could, after compound interest, only make the total debt paid larger. Furthermore, considering the current crisis in sub-prime mortgage lenders, second mortgages (the most popular form of debt consolidation) are more difficult than ever to take out and the resulting interest rates even for successful mortgages can be ridiculously high– leading to risks of eventual foreclosure; a serious threat for borrowers whose credit may already be a problem. For some consumers with low debt to income ratios and high credit scores, taking out equity loans for debt consolidation could be a viable option, but the overall costs (with closing fees sometimes approaching ten figures) too often spell trouble for the average borrower.
· The “Wait And See” Approach. Of course, the simplest solution to mounting bills is to try and tackle the problem yourself. Many borrowers, worried about the ethical ramifications and societal repercussions of declaring bankruptcy, attempt to create a family budget and lower their debt load through cutting corners. However, for most of them, that’s no longer a possibility, and, ignoring the past-due notices or borrowing from one card to pay the minimum balances of another, the situation could be exponentially worse. Consultation with a debt management professional – particularly a certified debt settlement specialist who, unlike Consumer Credit counselors or bankruptcy attorneys, does not charge fees for initial discussions – should illustrate the importance of trained professionals when planning a way out of protracted debt.
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Article Tags: Debt Management, Debt Settlement, Debt Relief, Credit Card Debt, Debt Consolidation, Bankruptcy Article Source: http://www.articlesbase.com/personal-finance-articles/the-alternatives-to-bankruptcy-489314.html About the Author:
My name is Cole I am a professional in the financial fields of bankruptcy and debt settlement. For more information on debt relief visit http://debtrelief.us.com or my blog http://www.colecollins.wordpress.com
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