Hey Is Credit Counseling Better Than Bankruptcy?

Or is bankruptcy better than credit counseling? I mean from a credit standpoint- thanks!! :)

Credit counseling is better to have on your credit report than a bankruptcy filing, particularly a Chapter 7 bankruptcy.

Many lenders compare credit counseling to Chapter 13 bankruptcy as the repayment structures of each are very similar. Both options require the debtor to make monthly installment payments (to the agency or in a BK to the court appointed trustee) which are dispersed to each of the creditors. Most of the time the debt is paid off in full with interest (occassionally a small percentage of debt can be discharged through a Chapter 13 once the installment plan is complete, but this is rare). Also, the length of each repayment plan under credit counseling or a Chapter 13 bankruptcy is typically 4-5 years.

Nevertheless, I don't think anyone out there would say credit counseling is worse to have on your credit report. If you sign up with a credit counseling agency, it is reflected on your credit report that you are enrolled in a debt management program throughout your tenure with that agency. Once you are done with the program, it no longer reflects that you are on a debt management program on your credit report.

Chapter 7 bankruptcy stays on your credit report for 10 years and Chapter 13 bankruptcy stays on your credit report for 7 years. Furthermore, both stay on your public records for 20 years.

I wonder what you mean from a credit stand point..and I agree with steven, if you are concerned with your credit report that is..

But if your question is - in solving your credit problem - which is better credit counseling or bankruptcy, then that would depend on what kinds of debt you have and of course, your financial situation.

I'd also just want to mention that credit counseling is not going to save a consumer who is facing foreclosure. In cases like that, filing bankruptcy is the better option, because of the automatic stay. It can temporarily stop a foreclosure.

If you file for a Chapter 13, it basically works like a debt management plan thru credit counseling, anyway--you'll be making your monthly payment to your bankruptcy trustee, who in turn will distribute your payment to all your creditors. So there's a certain similarity in terms of how each of them function.

BUT as mentioned earlier bankruptcy has more adverse effects on your credit than credit counseling does. Besides, in a debt management plan, your accounts may actually go current while you're in the payment program.

Just to pick up where Caffeinatrix left off, a Chapter 13 bankruptcy can also stop foreclosure proceedings, and allow the debtor to cure their delinquent mortgage dues.

@ Karess: but chapter 13 does not?

So- another thing to keep in mind when asking is credit counseling better than bankruptcy is the fact that while one is better for your credit report, they both entail the same repayment plan for the most part.

Most debt management plans and Chapter 13 bankruptcy plans are set up over 5 years. The debtor makes one monthly payment (to the agency or court appointed trustee handling the BK case) and those payments are dispersed to the owed creditors.

In a debt manegement plan, the full debt amount is paid back. In a Chapter 13, the majority of the debt and often the full debt amount is also paid back.

I agree and just to repeat what Steven has said, credit counseling is better than bankruptcy in terms of its impact on the consumer's credit.

Your enrollment with the debt management plan is only reflected on the report as long as you're still on the program, while bankruptcy stays on your report for 7 years (Chapter 13) or 10 years, and 10 years (Chapter 7) -- plus 20 years on your public records.

Next good question to ask is, so what? What is its significance to my life?