I am often asked if bankruptcy or debt consolidation is better for dealing with credit card debt. Although I am a bankruptcy attorney, I try to maintain an objective view on other ways of dealing with debt obligations. In theory, debt consolidation is a great idea if it can significantly reduce all the credit card debt without the individual having any negative credit report ramifications. The truth though is most of the debt consolidation companies have a difficult time getting credit card debts decreased with all the credit card companies. Next, the monthly payment most people have in a debt consolidation plan is hundreds of dollars if not thousands. In addition, many people are disappointed when using debt consolidated companies because their credit does not usually improve.
In contrast, Chapter 7 bankruptcy discharges or wipes out all the individuals credit card debt without having to pay a monthly payment. Even in a Chapter 13, a debtor would only have to pay a few cents on the dollar. Finally, most of my clients are thrilled to see that their credit begins to steadily improve within four months of filing for Chapter 7 bankruptcy. Some clients even are approved for loan mortgages within 24 months.