Should i file bankruptcy or debt consolidation

This is especially true if you have unmanageable debt. You might pay off a fraction of the debt, still be broke, and then need to borrow more money. Too many Americans generate income via self-perpetuating debt-cycles. Burning the candle at both ends burns up the wick too. At some point you may need to consider bankruptcy or debt consolidation to climb out of a debt quagmire. How can debt get so out of control to the point freelance or legal intermediaries must be brought in to solve it?

And, we need a clearer understanding of how bankruptcy and debt consolidation processes work. Those are the allure of the American identity as consumer and the pandemic decimating the finances of households and small businesses alike.

Who wants to practice responsible personal finance, or sacrifice, when there are things to buy? Beside, your future self a month from now can sacrifice. The government needs you to buy things so it has money to function. American households and small businesses already struggling with debt and budgeting were financially knocked out by the pandemic.

Now consider that , businesses have already closed permanently due to the pandemic. Over 60 million people have applied for unemployment insurance since March Tens of millions of Americans will be evicted in the coming months and years. You watch the news just like me. There are many reasons why you may need to utilize bankruptcy or debt consolidation. Bankruptcy or debt consolidation should be last resort options.

But for many Americans, those may be the only two options currently available. Declaring bankruptcy is a multi-year legal process. Every penny, dollar, and assets of value you own will be legally inventoried and monetized to convince creditors to negotiate what you owe. Debt consolidation combines all of your outstanding debts into one loan with a new interest rate. Your debts are basically turned into a personal loan in consolidation.

This consolidated debt loan is wholly controlled by a financial service or a bank who negotiates bill payment in your stead. The debt relief process that works for you depends on how involved in the process you want to be. You can file for Chapter 7 or Chapter 13 bankruptcy. The type of bankruptcy you file for depends on your financial status and the availability of assets that can be liquidated. These are legal processes where your money and assets are inventoried, liquidated, reorganized, and divided up between all concerned creditors.

You will be assigned a court-appointed bankruptcy administrator. They will oversee your finances and negotiate with your creditors in your stead but also in guided coordination with you. Your bankruptcy administrator legally negotiates with your creditors to get them to accept a negotiated value of your liquidated assets.

This value may be lower than what you actually owe but is better than creditors getting nothing. Once paid off, your debts are discharged, or legally settled. Bankruptcy, in other words, is the clear choice to make if debt consolidation and other measures such as a debt management plan aren't possible, or viable over the long term. The strong negative effects of bankruptcy mean you should always consult with a lawyer before pursuing that option.

But if you cannot use debt consolidation or other strategies to bring your debt under control bankruptcy, despite its severe consequences, may be worth it if they allow you a financial fresh start.

The purpose of this question submission tool is to provide general education on credit reporting. The Ask Experian team cannot respond to each question individually. However, if your question is of interest to a wide audience of consumers, the Experian team may include it in a future post and may also share responses in its social media outreach.

If you have a question, others likely have the same question, too. By sharing your questions and our answers, we can help others as well.

Personal credit report disputes cannot be submitted through Ask Experian. To dispute information in your personal credit report, simply follow the instructions provided with it. Your personal credit report includes appropriate contact information including a website address, toll-free telephone number and mailing address.

To submit a dispute online visit Experian's Dispute Center. If you have a current copy of your personal credit report, simply enter the report number where indicated, and follow the instructions provided. If you do not have a current personal report, Experian will provide a free copy when you submit the information requested.

Additionally, you may obtain a free copy of your report once a week through April at AnnualCreditReport. Learn more. Editorial Policy: The information contained in Ask Experian is for educational purposes only and is not legal advice.

You should consult your own attorney or seek specific advice from a legal professional regarding any legal issues. Please understand that Experian policies change over time. Posts reflect Experian policy at the time of writing.

While maintained for your information, archived posts may not reflect current Experian policy. Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication and are updated as provided by our partners.

Some of the offers on this page may not be available through our website. Offer pros and cons are determined by our editorial team, based on independent research.

The banks, lenders, and credit card companies are not responsible for any content posted on this site and do not endorse or guarantee any reviews. Advertiser Disclosure: The offers that appear on this site are from third party companies "our partners" from which Experian Consumer Services receives compensation.

This compensation may impact how, where, and in what order the products appear on this site. The offers on the site do not represent all available financial services, companies, or products.

Once you click apply you will be directed to the issuer or partner's website where you may review the terms and conditions of the offer before applying.

We show a summary, not the full legal terms — and before applying you should understand the full terms of the offer as stated by the issuer or partner itself. While Experian Consumer Services uses reasonable efforts to present the most accurate information, all offer information is presented without warranty.

Experian websites have been designed to support modern, up-to-date internet browsers. Experian does not support Internet Explorer. If you are currently using a non-supported browser your experience may not be optimal, you may experience rendering issues, and you may be exposed to potential security risks. It is recommended that you upgrade to the most recent browser version. Experian and the Experian trademarks used herein are trademarks or registered trademarks of Experian and its affiliates.

The use of any other trade name, copyright, or trademark is for identification and reference purposes only and does not imply any association with the copyright or trademark holder of their product or brand. Other product and company names mentioned herein are the property of their respective owners. Licenses and Disclosures. Advertiser Disclosure. By Jim Akin.

In this article: What Is Bankruptcy?