Bankruptcy vs. debt consolidation: Which option is right for you?

Across the Treasure Coast, families and small businesses are feeling the effects of a tightening economy. In the past twelve months, personal and business bankruptcy filings have increased by 10 percent compared with the previous year. As a result, individuals and businesses within our community are asking our bankruptcy attorneys about the differences between fiing for bankruptcy and debt consolidation. In this blog, we share the pros and cons of filing for bankruptcy or opting for debt consolidation to help you understand your options and and find a debt solution that’s right for you.

The pros and cons of filing for bankruptcy

Bankruptcy is a legal process that can provide you a fresh financial start by discharing or reorganizing your debts. In Florida, individuals and businesses have several bankruptcy options, with Chapter 7 and Chapter 13 being the most common.

Pros of filing for bankruptcy:

• Debt discharge: One of the most significant advantages of filing for bankruptcy is the potential to have a significant portion of your debts discharged. This can provide a clean slate and a chance to rebuild your financial life.

• Automatic stay: As soon as you file for bankruptcy, an automatic stay goes into effect, preventing creditors from pursuing collection efforts, including wage garnishment and foreclosure.

• Long-term relief: Chapter 7 bankruptcy can provide relatively swift debt relief, while Chapter 13 allows for a manageable repayment plan that spans over three to five years.

• Fresh financial start: Bankruptcy can give individuals and businesses a chance to start anew without the burden of past debts.

Cons of filing for bankruptcy:

• Credit impact: Bankruptcy can negatively impact your credit score. For example, filing for bankrupcy can make it harder to obtain credit in the future. This can potentially result in higher interest rates when you can access credit.

• Asset liquidation: Chapter 7 bankruptcy may require the liquidation of non-exempt assets to pay off creditors. While Florida’s bankruptcy exemptions are relatively generous, some assets could still be at risk.

• Public record: Bankruptcy filings are a matter of public record, which means that your financial troubles will become part of the public domain.

• Limited eligibility: Not all individuals and businesses are eligible for Chapter 7 bankruptcy. Some may be required to file under Chapter 13 and repay a portion of their debts.

The pros and cons of debt consolidation

Debt consolidation involves combining multiple debts into a single, more manageable payment through a loan or a debt management plan.

Pros of debt consolidation:

• Simplified payments: Debt consolidation streamlines multiple payments into a single monthly installment, making it easier to manage your finances.

• Preserved credit score: While debt consolidation can temporarily impact your credit score, it’s generally less severe than bankruptcy. This may allow you to maintain access to credit.

• Avoiding bankruptcy: If your financial situation isn’t dire, debt consolidation can offer an alternative to filing for bankruptcy and potentially protect your creditworthiness.

• Interest savings: A consolidated loan or plan might come with lower interest rates than some of the original debts, leading to potential savings over time.

Cons of debt consolidation:

• No debt discharge: Unlike bankruptcy, debt consolidation doesn’t eliminate your debt. You’ll still be responsible for repaying the full amount, although in a more manageable way.

• Potential for continued struggle: Debt consolidation doesn’t address the underlying financial issues that led to the debt accumulation. So, if spending habits aren’t changed, the risk of falling back into debt remains.

• Possible fees: Some debt consolidation programs or loans might come with fees, impacting the overall cost-effectiveness of the strategy.

• Lengthy repayment: Depending on the terms of consolidation, repayment periods could be extended. This results in paying more interest over the long run.

Are you considering filing for bankruptcy in Port St. Lucie, Fort Pierce or Vero Beach?

We can help. Call us at 866-930-6435.

If you are a resident or small business owner in Port St. Lucie, Fort Pierce, or Vero Beach, and you are considering filing for bankruptcy or opting for debt consolidation, it’s crucial that you weigh the pros and cons carefully. At Hoskins, Turco, Lloyd & Lloyd, we have a full department dedicated to assisting individuals and business owners with filing for bankruptcy. Our experienced bankruptcy attorneys have helped hundreds of St. Lucie County and Indian River County residents and businesses get a fresh financial start.

We will help you navigate the complexities of bankruptcy law, provide personalized advice, protect your rights, streamline the process, and maximize the benefits available to you. Our expertise and support will make a significant difference in your bankruptcy experience and ensure the best possible outcome for your financial future.

We offer free bankruptcy consultations to help you understand your legal and financial options. Call us today at 866-930-6435 to schedule your complimentary meeting.