If you’re finding yourself in dire financial straits, you aren’t alone. Millions are suffering from excessive debt, especially compared to last year. According to Statista, there is currently about 30 trillion dollars of debt shared among the American people, up 2.7 trillion from last year’s count. That, coupled with the economic uncertainty that the pandemic is placing on millions of families, is leading to the potential for more bankruptcy claims and eventual foreclosure. There are ways to avoid this, but it is important to weigh all of the elements and determine which path to debt resolution is right for you. In this article, we’ll explore what bankruptcy and credit counseling options are, the differences between the two, and how you can determine which is the right option for you.

What is bankruptcy?

Bankruptcy is a process that essentially liquidates most types of outstanding debt, allowing you to go without repayment and start fresh. This sounds like an outstanding option for those who are dealing with chronic debt that is considered to be unrepayable. The problem with bankruptcy claims is that they will continue to follow you on your record, and could pose additional issues when it comes to moving, purchasing a home, upgrading your car, or any other larger purchases that you plan to make. While there are multiple types of bankruptcy claims (known as Chapters), they will all have this lasting effect on your credit and record.

What is credit counseling?

Credit counseling is a process that you can undergo if you are dealing with large amounts of debt as a result of chronic spending and other financial issues. If you choose this option, you will be meeting with a trained credit counselor and going through your financial records and spending patterns. They can then sit with you and create targeted strategies that cover repayment and budgeting, empowering you with financial tools in an effort to help you avoid bankruptcy, foreclosure, or other types of unsavory financial consequences.

Is credit counseling or bankruptcy the right choice for you?

While there are certain criteria that you can reference to determine your next correct financial step, it is important to note that these steps are very personal and subjective, requiring your honest evaluation of which would best suit your needs. If you are feeling unsure, consult with your attorney or financial advisor to determine which is the most appropriate option for your current state of affairs.

There are many key differences between credit counseling and bankruptcy. They also have many similarities and points in the debt resolution process where they intersect. For example, those who opt to undergo bankruptcy claims legally must complete credit counseling. For this reason, you may want to consider choosing credit counseling first, as this is not something that can go on your permanent record and disrupt your ability to purchase down the line.

Credit counseling can be especially helpful. In most cases, this is a completely free service that you can take advantage of to optimize your budget and spending patterns to be more in alignment with what you make — avoiding further missteps and debt incursion as much as possible. If your budgetary issues are due to mismanagement, you can work with them to create repayment plans and strategize in order to build up your credit. This can be a great choice if you have fallen into a temporary difficulty that is prohibiting you from paying your debts, and you need to be eligible for a loan to continue to address the most immediate debt. The reason this works well is your ability to rebuild your credit under this option.

Bankruptcy may be an ideal choice if you consider the amount that you are in to be insurmountable. What would qualify as insurmountable would be if you considered the consequences of bankruptcy (i.e. lower credit score, difficulty borrowing) to be more accessible and necessary than going through the process of repayment. We want to stress that bankruptcy is a serious step that will require weeks to months of the administrative process to be finalized. It is still a legal process, which may run you additional fees.

What should I do if I am considering bankruptcy?

If you’re considering bankruptcy, we encourage you to seek legal help from a trusted attorney. At Ascent Law, we’re committed to offering Utahns assistance through any bankruptcy case at affordable rates and will work with you and empower you to find financial assistance. Contact our office today at (801) 432-8682 to book your free introductory call. We look forward to serving you soon!