Recession issues bring urgent question: consolidation or bankruptcy

 

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Carol Forsloff - Daily news reports tell of fresh heartaches daily from financial woes in this recession, so many people are wondering whether to claim bankruptcy or seek debt consolidation.  So what is the best choice according to the experts?

"I don't know what we are going to do.  I can't sleep; my husband and I are fighting, and now the kids are feeling the pressure to.  My husband lost his job, and right now we only have one income; and we can't pay our debts.  This has been going on for a long time, and we don't know what to do with all our bills, some of which are getting big, so big we are getting bill collectors calling.  What should we do?

These questions and these feelings are part of ordinary conversation among people during this recession, as folks struggle with what to do about mounting debt.

Experts tell us how financial worries can make people feel depressed and overwhelmed.  Financial problems create common stresses when people are faced with what seems to be insurmountable debt caused by a prolonged illness, job loss, failing business, divorce or other reason.  There are many options folks consider before taking action, but finally they become to take action; and for many it is bankruptcy or debt consolidation.  Both have the goal of helping the individual regain financial control.  But they are different, and it is important for those considering alternatives to make the right decision on a debt relief option that can help relieve , afinancial stress, experts say. 

If you have what is called high-value or complicated debts, like those involving several mortgages, car payments, ownership shared with owners of certain assets and other similar debts, bankruptcy, either Chapter 7 or Chapter 13 bankruptcy might be the best option.  This is a way of bringing immediate relief to such emotionally-charged, anxiety-causing issues like the different forms of debt collection including foreclosures, garnishments, repossessions and creditor harassment.  These must stop when a bankruptcy proceeding begins. Chapter 7 bankruptcy will discharge your unsecured debt, wiping the slate clean quickly. Chapter 13 may not discharge as many of your debts immediately, but it does combine them into a single monthly payment that you will make for a set period, an attorney explains.

Both of these choices give an individual time to get back to some sense of normal, are cost-effective options, put an end to the harassing phone calls and threatening letters, and allow an individual to save money in the long run. Another advantage of filing for bankruptcy is that the process itself and the attorneys involved are highly regulated by federal statutes and state ethical guidelines.

The issues of debt consolidation can be more complicated in that they combine a number of smaller debts into a larger one that allows easier repayment.  It sounds good, and there are companies that do a good job in a helpful way.  There are also those who don't, and debt consolidation is not as easy or the "miracle" cure many people think.

Government entities and attorneys point to disreputable companies that charge excessive fees for empty promises. Some say that they can "negotiate with your creditors" to settle your debt, but there is no guarantee that a negotiation will prove to be successful.  Besides, what they may not tell you, is that you could directly contact the company for a settlement discussion for free. Many people actually find themselves in worse shape after attempting a debt settlement; they have now wasted time, money and energy trying in vain to resolve their debt.

In trying to make a decision, there are public agencies that can help in that first step and can be recommended by local community agencies.  If it gets beyond that, take another step and contact an attorney, is the recommendation because of the legal complications involved in getting some form of debt relief.

The recession has caused financial problems for thousands of people, with more and more falling into an abyss of what they consider hopelessness and inability to move ahead, for whom bankruptcy might be the best option, and is something that hangs on for awhile, but doesn't last forever; and some say can help move the crisis away so that an individual starts all over with a clean slate upon which new and good things can be written.For those considering bankruptcy, these are the basics.  It is  the important at the outset to know who qualifies for what type of protection under the law, since these things may change with a new philosophical direction about how to handle such matters, as the last revision was done under the Bush administration, making it more difficult for individuals to qualify.

Making the right choice can be difficult and stressful, but getting debt relief can help relieve a burden and allow families not to face the hurt that can come with money problems.  How to make that right choice requires information lawyers and state agencies say people need to check before moving ahead.