Bankruptcy Vs. Alternatives

 Posted on January 10, 2024 in Bankruptcy Options

Facing unmanageable debts can leave you weighing options like bankruptcy and other alternatives. There are pros and cons to each approach. Before you decide, it is important to know how each option works so you can discuss which is most ideal for you with a Texas bankruptcy attorney.

Attempting Mortgage Loan Modification

If you are facing unmanageable debts from burdensome mortgage payments, consider pursuing a loan modification. This involves adjusting the loan terms, often through extended repayment terms or reduced interest rates, to lower ongoing monthly payments to more affordable levels. To qualify, you would need to document qualifying financial hardship

Potential benefits of a successful loan modification include lowering housing payments so you can stay in your current home while preventing any foreclosure damages to your credit

However, potential drawbacks exist as well. Loan servicers still reserve the right to deny applications even with demonstrated hardship. Additionally, your credit score may still take a hit from previous late mortgage payments that led to seeking the modification in the first place.

Seeking Debt Consolidation Loans

Debt consolidation involves taking out a new loan to consolidate multiple high-interest debts into a single repayment to secure a lower interest rate and simplify bills into one monthly payment

Potential advantages of debt consolidation loans include only having a single loan payment to manage versus multiple creditor bills, lower total interest costs over the long run if a substantially lower rate can be qualified for, and stopping harassing daily calls from creditors demanding payments

There are also risks to weigh, including additional borrowing temporarily hurting your credit score, the possibility of denial if your credit is not strong enough, and lenders likely requiring pledged collateral assets to secure the consolidation loan.

Attempting Direct Debt Settlement Negotiation

Debt settlement involves negotiating directly with creditors or through a relief company to pay a lump sum less than the total balance owed in exchange for accounts getting closed and the remaining amounts forgiven

Potential advantages of successful debt settlement deals include settling outstanding debts by paying back less than originally owed and getting creditors to agree to wipe accounts upon receipt of the reduced settlement sums

There are risks to factor in as well when considering this path. It requires securing large lump sum settlement payouts, either through savings or borrowing, in order to put forth the deal. Even if settlements are reached, your credit score still often gets further damaged in the process. Debt collectors frequently refuse settlement overtures unless facing bankruptcy alternatives

Pursuing Bankruptcy for Comprehensive Financial Fresh Start

Filing bankruptcy legally requires discontinuing collections on many outstanding unsecured debts while halting wage garnishments and related civil lawsuits, providing reliable long-term financial relief

Key potential benefits include eliminating multiple debt repayment obligations, retaining assets like houses despite temporary liquidity issues, and preventing daily creditor harassment calls

Credit scores tend to gradually recover in the years following bankruptcy. However, downsides exist too. Bankruptcy damages credit, making financing difficult in the short term post-filing. There are also risks of liquidating retirement savings and valuable property to repay debts

Contact a Boerne, TX, Bankruptcy Attorney

While debt management or settlement may seem preferable to bankruptcy, if you face an unmanageable debt burden that exceeds your repayment capacity, bankruptcy may be the most viable path forward. By meeting with a Schertz, TX bankruptcy lawyer to evaluate your unique financial situation and options, you can determine whether bankruptcy or an alternative strategy would benefit your long-term financial well-being. Call Law Offices of Chance M. McGhee at 210-342-3400 for a free consultation.