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What's the difference between debt consolidation and bankruptcy?

It can be quite overwhelming to find yourself with mounting debt. You may find yourself having to choose between two equally unattractive options if you find yourself in this situation. You may have to decide between debt consolidation or filing bankruptcy. There are positives and negatives associated with each. You'll need to carefully weigh your circumstances to make the best choice for you.

Individuals generally take out unsecured personal or home equity loans or transfer balances between credit cards as part of the debt consolidation process. Debtors who pursue this option generally do so because it allows them to both lock in a lower interest rate and make a single payment each month instead of multiple ones.

There are two different bankruptcy options that you can choose from including Chapter 7 and Chapter 13.

Individuals who file for Chapter 7 can generally discharge most every debt that they have. There are some exceptions though. Student loans cannot generally be discharged in bankruptcy unless you can show that paying them is causing you some undue hardship. You'll be expected to pay off most of your debts following a repayment plan if you file for Chapter 13 bankruptcy.

Anyone who pursues either debt consolidation must have good credit or find a cosigner if they want to lock in the best interest rate and lowest possible monthly payment. If you pursue this option, then you'll have to pay fees to do so. You'll also need to make timely payments up until you reach your payoff date. Any unpaid debts won't be discharged as part of the debt consolidation process. Your credit score may be negatively impacted for years after pursuing this option.

You need to demonstrate that your income is too low to cover your debts if you're looking to file for bankruptcy here in Cleveland. Your nonexempt assets may be liquidated to pay off your creditors as part of this process. Although your credit may eventually recover, a bankruptcy can remain on your credit report for seven to ten years.

It can be hard to weigh the pros and cons associated with filing for bankruptcy or pursuing debt consolidation. A credit card debt attorney can fill in any gaps with information that will help you decide what process is best for you here in Tennessee.

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