Bankruptcy has a somewhat negative reputation. Many people find the idea of bankruptcy intimidating, and some people go to extreme lengths to try to avoid bankruptcy proceedings. There are a number of different debt relief systems that companies may advertise as alternatives to bankruptcy.
Those struggling to balance their budgets and meet their financial obligations may find themselves desperate for an alternative option. What other choices do people have when they need financial relief but hope to avoid a personal bankruptcy filing?
Most debt solutions involve new debt
Many of the companies offering bankruptcy alternatives or financial relief in some form offer lending services. They claim to help people consolidate their debts or settle their financial obligations, but the process of settling or consolidating the loans typically requires that the borrower struggling with their debt take on a new loan provided by the company.
That single loan could replace multiple credit cards with higher interest rates. Some companies even offer settlement services where they contact credit card lenders and other creditors trying to reduce the payoff amount required to fulfill the individual’s financial obligations.
The problem with these solutions is that they don’t actually address an individual’s economic challenges. While the interest rate applied or the payment required each month might be slightly lower, the person struggling still has a large amount of debt that they need to pay off before their circumstances actually improve.
They may lose the flexibility of having revolving lines of credit and may see their credit score drop substantially due to the sudden closure of multiple credit lines. Some debts may end up reported as settled instead of paid in full, creating a major credit blemish.
Bankruptcy is an actual solution
Unlike debt consolidation, debt settlements or credit card balance transfers, bankruptcy actually eliminates a portion of an individual’s financial obligations. The filer can diminish their overall financial responsibility by discharging some of their debts.
While the credit score of the person filing is likely to drop substantially, they can begin rebuilding their credit score relatively quickly after completing the bankruptcy process. Instead of simply moving debt from one creditor to another, eliminating financial obligations by discharging them is often the best solution available.
Learning more about the so-called solutions offered by businesses may help people recognize that a personal bankruptcy filing is truly the best option available. Filers receive protection from aggressive collection efforts and can reduce their long-term financial pressure by discharging eligible debts.
