LoansIs Declaring Bankruptcy an Ideal Option for Debt Relief?
Easy availability of loans in the recent times has given rise to a trend of indiscriminate borrowing. Consequently, those who borrow beyond their means end in a debt trap. Even though various debt relief options are available, in certain cases declaring bankruptcy may be the only way out.
Pros And Cons Of Declaring Bankruptcy For Debt Relief
Bankruptcy is the legal declaration of the debtor that he is not in a position to pay back the creditor. Once a debtor declares that he is bankrupt, the law prohibits the creditors from collecting the debts. It will help the debtor to keep the creditors at bay until he can make some alternate arrangement. In many cases, a major part of his debt is written off and he will have to pay back a small percentage of what he owes. Also by declaring bankruptcy, he can make a fresh beginning. Because of this, the people may feel that declaring bankruptcy is the best form of debt relief. However, it is not so.
• Credit rating of the borrower suffers badly because of this. His future loan applications will be rejected. No loan company gives loan to a bankrupt person.
• When a debtor declares bankruptcy, the collateral owed to the creditor has to be given. The debtor cannot keep it with himself. In certain cases, the property of the debtor is used to pay off the creditors also.
• Declaring bankruptcy does not absolve the debtor from the tax burdens, child support and other types of loans. He still will have to make provisions for those financial liabilities that he has to pay.
• In bankruptcy, mortgage or other collateralised loan will no be eliminated. Payments towards them will just be deferred until the issue of bankruptcy is cleared.
• In some countries, people who have declared bankruptcy will find difficult to get a job. Because declaring bankruptcy will raise a question on his character.
That is why declaring bankruptcy as a way of debt relief is not an intelligent move. In fact, it is a very disgraceful action that leaves a permanent black mark on ones credit report and character. Therefore, debtors resort to it as a last attempt to escape the debt trap. If the debtor has some sources to pay off his debt then the best course of action to get him out of the debt trap would be to opt for a suitable debt relief plan. He can make a plan debt relief for himself which would require a lot of self discipline to implement. Else, he can avail the services of a debt relief company that will help in devising a suitable debt relief plan for him based on his financial situation and repayment capability.