Bankruptcy Vs Credit Counseling - What's the Difference?


A lot of people are often confused about the difference between bankruptcy and credit counseling. Due to the mental and emotional exasperation caused by financial difficulties, many people get into various court proceedings without a proper understanding and orientation of their case. Bankruptcy is different in many ways when compared to credit counseling. Although both processes have repayment schemes when dealing with Chapter 13 cases, they have dissimilar approaches when it comes to financial state of affairs. In order to clarify these situations, we tackle report bankruptcy vs. credit counseling.

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Credit counseling is powered by different agencies with groups of professional financial advisers. Credit counselors would usually provide the client an option as to how he would like to restore his arrears with a particular creditor. Most credit counselors go for repayment plans, wherein a thorough investigation will be done on the customer's income and expenditure. Upon determining your ability - or disability - to pay, they will coordinate with the creditor on your behalf. Most financial institutions and lenders recommend the use of credit counseling.

This is because creditors have more chances of collecting back debts from customers when they are under counseling. When a customer files for bankruptcy, specifically Chapter 7, there is hardly any chance for bank collection agents to get back the money owed by the borrower. As with most financial transactions, you still have legal liability over decisions made through credit counseling. You will be able to directly manage the impact of your actions to your credit report.

Bankruptcy, on the other hand, is subdivided in different chapters. Filing for bankruptcy is often the best choice for people who are facing repossessions and foreclosures. Unlike credit counseling, which usually deals with minor arrears such as bank account delinquencies, bankruptcy is commonly the last resort for those who have a big amount of debt. The costs and effects of bankruptcy are more taxing compared to credit counseling. An individual's credit report can easily be tainted by bankruptcy as soon as the filing takes place. This reflects in your credit report for ten whole years and may also be the cause of rejection for future credit applications.

In order to qualify and be declared as bankrupt, a person needs to submit the proper forms in federal court, and go through extensive legal proceedings. Instead of getting a mere credit counselor to assist you with the paperwork, a bankruptcy attorney is needed to help you go through the entire process. Although there are services that provide free legal assistance, spending a lot for your bankruptcy case usually provides more benefits in the end. The concept of bankruptcy is also something that needs to go through further thought and consideration on the part of the person being subjected to the case.

Many financial advisers still prefer consumer counseling over reporting bankruptcy as it initiates responsibility towards the customer who made the account delinquent. It is also more favorable to give an individual the chance to repay the creditor in order to satisfy both parties involved.


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