Many times, I meet with potential clients who are in the process of weighing credit counseling v. bankruptcy in Jacksonville, Florida in hopes of achieving debt relief. These potential clients, who largely become clients, want to know what the main differences are between credit counseling and bankruptcy. I always stress the importance of my client’s goals as they try to decide which option is best for them. For some, bankruptcy is the last possible option they will consider. This is due to the bad stigma many people associate bankruptcy with, but this is why bankruptcy might make the most sense in the long run.
Let’s start with defining credit counseling. Credit counseling is when you work with an agency or company you have hired to help you come up with a plan to pay off your debt. However, you must be very careful when choosing a credit counseling agency as many charge high rates and do not actually help you pay off your debt as promised. I have many clients who have come to me after this specific experience. It is best to choose a not-for-profit agency.
It is important to note from the very beginning that credit counseling will not reduce your overall debt. The goal is to come up with a plan to pay off your debt over three to five years. Credit counseling is also not helpful for secured debts such as mortgages and car loans. While your plan can include your secured debts, it is meant to deal with unsecured debts such as credit cards and personal loans.
The number one pro that makes credit counseling v. bankruptcy in Jacksonville, Florida a better option to many is its effect on your credit score. Credit counseling helps you to bring credit accounts in default current and also helps you to lower your balances. Additionally, the fact you are in credit counseling will not appear on your credit report. Because of these factors, your credit score begins to improve almost immediately.
Bankruptcy is the legal process in which you are no longer legally liable for your debts because your debts are discharged. A Chapter 7 Bankruptcy is a complete liquidation of your assets in exchange for your debts being discharged. However, because you are allowed certain exemptions to protect your assets, it is possible to not actually lose any of your assets.
The number one pro that makes bankruptcy appealing to many is how quick the process is (around 120 days) versus a payment plan of three to five years through credit counseling. The other major pro of filing a Chapter 7 Bankruptcy is that you do not have to pay back your debts because your debts are discharged. Bankruptcy is also better equipped to help you deal with your secured debts.
The biggest drawback to bankruptcy is its harsh effect on your credit score. Your credit score will be affected as soon as you begin the bankruptcy process and the fact that you filed bankruptcy will appear on your credit report for seven to ten years. However, many are surprised to learn they actually receive credit card applications in the mail shortly after their debts have been discharged. This is because creditors view those coming out of bankruptcy as good candidates to extend credit to because of the very low debt to income ratio. Not only are you able to obtain a new credit card shortly after bankruptcy, but many of my clients have obtained new car loans and mortgages as well. Therefore, although the fact you filed bankruptcy will remain on your credit report for seven to ten years, it is not a complete bar to obtaining new credit for nearly as long.
When weighing your options of credit counseling v. bankruptcy in Jacksonville, Florida, which option is best for you largely comes down to which pros and cons are most important for you and how quickly you wish the process to be completed. A Chapter 7 Bankruptcy is by far a much faster and less expensive process as it is over within a few months rather than several years and you do not have to repay any of your debts. Contact the Law Office of David M. Goldman, PLLC today to speak with an experienced bankruptcy attorney that can help you better weigh your options.