People who are struggling with their debts may have looked into some options. In that case, they have found two main ways to resolve debts: filing for Bankruptcy and pursuing debt relief.
The detail relevant to the diversity of debt relief vs. Bankruptcy will determine in this article. It is a fact that debt relief and Bankruptcy have a few similarities. In addition to this, both options are specially designed to help you get out of debt.
Bankruptcy is a legal process in which you must file in court and work with a trustee to discharge or pay back some debts. On the other hand, debt relief has many debt relief programs that will help you get out of debt without declaring Bankruptcy. In this short guide, you will learn in detail about debt relief and Bankruptcy.
Debt Relief Programs:
There are many famous debt relief programs available for people who are struggling hard with their debts. However, most debt relief programs don’t involve court or legal proceedings.
Instead, you must negotiate with your creditors and develop a plan to repay all or some of your debt. While debt relief is broad, there are typically four options.
Debt Consolidation:
In this program, you have to take debt from multiple sources and gather them into one debt. In addition, most homeowners consolidate their debt with a cash-out refinance. It is because mortgage interest rates are lower than any other type of debt.
There is also an option to use a personal loan to consolidate debt. This program helps you to make your payments more manageable.
Debt Settlement:
People who feel that they can’t afford to pay back the entirety of what they owe can help from a debt settlement program. As the name indicates, debt settlement is settling debts by agreeing to pay a portion of your debt in a lump sum.
In exchange, your creditors agreed to forgive the reminder of what they ate owed. Typically, it is the best method to protect yourself from bankruptcy and get out of debt quickly.
Credit Counseling:
Sometimes you have a large debt and wonder where to start repayment. In that case, you need to hire a credit counseling agency. They will look at your income and debt and, according to that, recommend you a solution.
In addition, they will also help you choose other debt relief programs that are helpful to get relief from your debt.
Debt Management:
In this program, a financial counselor will help you to set up a voluntary agreement for repayment between you and your creditors. After that, you need to pay one lump sum payment each month.
Your financial counselor distributes a percentage of your payment to all your creditors and closes the accounts you pay them off. The financial counselor also often negotiates lower interest rates with your creditors.
Bankruptcy:
However, it is a legal process that helps you get relief from certain types of debt. Declaring Bankruptcy is a very effective way to eliminate debt, but it is a fact that there are more complete solutions.
It is because of some types of debt you can’t discharge in Bankruptcy. There are two common types of Bankruptcy, and it is important to understand the difference between them.
Chapter 7 Bankruptcy:
It is also famous as “liquidation bankruptcy.” In Chapter 7 bankruptcy, a court may order you to liquidate some of your property. However, most states exempt property essentials to everyday life from this process.
Once you sell your assets and pay the money you get from the sale to your creditors, the court gives relief in your remaining debt. This type of Bankruptcy has a huge impact on your credit.
Chapter 13 Bankruptcy:
During chapter 13 bankruptcy, a court looks at your finances and orders you to complete a payment plan to your lenders. Most payment plans consist of 3 to 5 months. Once you finish your payment plan, a court relieves your remaining debts. Typically, it is a costly way to get debt relief.
Conclusion:
Debt relief and Bankruptcy are both methods you can use to get out of your massive debt. In this article, you will learn the complete difference between debt relief vs. Bankruptcy. When you file Bankruptcy, you file a court to free yourself from some or all of your debt.
In this process, you have to sell your assets or follow a repayment plan before a court gives you relief from your debt. On the other hand, debt relief programs can be a better way to pay down debt.
It is an umbrella term that contains many programs for tackling debt, depending on your chosen program.