Bankruptcy Or Debt Consolidation?

Someone going by the moniker “Good Nelly”, on a debt consolidation site, writes about 6 reasons not to file bankruptcy.

Well, let me go through them.

1.  Your credit is badly hit.

Why are you contemplating bankruptcy if you have good credit?  Now, sometimes foresighted people call me right when they get laid off, or lose their overtime, or the partner bolts, and they know they will be in default soon.

But normally, folks try as hard as they can, as they should, to stay out of bankruptcy, and are behind on virtually everything before they call me.  Their credit, ergo, is already shot.

I am jumping ahead, because two of the other points are essentially the same as this one.

4.  Adverse effect on your financial future: Bankruptcy has an adverse effect on your financial situation. For instance, filing bankruptcy can influence the status of your security clearance if you don’t inform your employer about your bankruptcy and why you’ve filed for bankruptcy, and can also limit future job opportunities depending on the field of work you are in.

Uh, yeah.  Same as point one.

Although the part I highlighted has nothing to do with bankruptcy.  LYING ON YOUR EMPLOYMENT APPLICATION is what effects your security clearance in the example given.  Not the fact of having filed bankruptcy.

5.  You may not qualify for new credit: Getting approval for new loans/credit is tough after you’ve filed bankruptcy. It’ll take anywhere from 2 to 5 years for you to qualify for a secured loan (such as mortgage). Unsecured loans are hard to qualify for if you file chapter 13 bankruptcy for the entire 3 to 5 year repayment plan.

Uh, looks like the author had 3 points but had to stretch them to 6.

Points 2 and 6 are also the same, property may be effected, and, not all retirement plans are affected.  Retirement plans are a form of property,  most of which are exempt under bankruptcy law, especially in Michigan, were we have the federal bankruptcy exemptions.

So what happens to this property if you do NOT file bankruptcy?

If it is not exempt under bankruptcy law, your creditors can probably get to it under state law.

The final point is “Not all debts can be eliminated.”

So?  Maybe you can deal with the others with a debt settlement plan.

My question to folks who are good candidates for bankruptcy, whether Chapter 7 or Chapter 13 or Chapter 11, is, what is your plan for repaying if you do NOT file bankruptcy?

Paying less than what you owe through a debt consolidation also whacks your credit score.

As always, get the facts.

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One Response to Bankruptcy Or Debt Consolidation?

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