Pros And Cons Of Declaring Bankruptcy 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.

Tax Debt Relief

Government grants as an option of debt relief is not very popular. This is basically due to the lack of awareness amongst the people. Every year billions of dollars are kept aside for the purpose of giving away as government grants. People do not opt for these grants for debt relief because they think that either these grants are not available to individuals or they are not eligible to apply for the same.

Why Government Gives Grants For Debt Relief

When people are debt ridden, their expenditure decreases. This reduces the demand for various things in the economy because people will not have money to spend. Slowly this affects all areas of the economy, with the result that the economy of the state / nation suffers. Therefore it is imperative that the people have enough spending capacity so that the economy prospers.

Debt Relief With Government Grants

Government grants are more easily available than other forms of loans. This is because grants unlike loans do not require collateral or any other form of security. These thousands of dollars got as grants can be used for starting a new business, the proceeds from which can be used to clear off previous debts. 
Grants are also available for clearing off debts incurred due to specific reasons like health care, education, business expenses etc.  For e.g. a debt incurred for health care purposes like hospitalisation, medical bills, etc. can be cleared with the help of government grants. Debts incurred for setting up a business can also be funded using government grants. This makes government grant an ideal debt relief instrument.

Are grants easily available?

Grants are easily available to those people who can prove to the government that they are not in a position to pay off their debts. The social service office elaborately studies the financial position, outstanding debts and repayment capability of the debtor before issuing the grant. This is to ensure that the grant is going to the extremely needy people who have no other means to salvage their debt ridden situation.

Advantages Of Availing Government Grants For Debt Relief

1. A grant is easily available because no collateral is required to be got for it. The debtor just has to prove that he is not in a position to pay off his debts.

2. A grant is an aid from the government. It is not a loan. Hence it need not be paid back. It is both interest-free and non-taxable. It is given with the sole purpose of getting the finances of the debtor back on track, thereby making him debt-free subsequently.

3. With the availability of government grants for debt relief the debtors are saved from declaring bankruptcy.

4. Grants in comparison with other form of debt relief are a better option because they make the debtor debt free instantly. 

Government grants are therefore an ideal debt relief option for those debtors who have no other option but to declare bankruptcy.

Understanding Debt Consolidation

Has your frivolous spending landed you in a vicious circle of debt? Have your debts become unmanageable that you are having sleepless nights? Opt for debt consolidation, the best debt relief option to get you out of the debt trap. 

Understanding Debt Consolidation

Debt consolidation is the process of consolidating all the outstanding loans into one loan. The debt consolidation company gives a loan for the debt amount so that the debtor can pay off all his creditors. The debtor is therefore left with only one outstanding loan. This will make it easy for him to manage and repay the loan. Another advantage of going for a debt consolidation loan is that such loans are usually designed to help the debtor become debt free. Therefore, they have lesser interest rates and easy repayment period making them a better debt relief option.

Debt Consolidation Loan Options

Various debt consolidation loan options are available to debtor for debt relief like

1. Secured Debt Consolidation Loan: If the debtor has something that he can give as collateral, he can opt for a secured debt consolidation loan. Since he is giving security against the loan the interest rates for these types of loans is very less. The most popular of this type of loan is the home equity loan. The debtor gets the debt consolidation loan against the collateral of his house. He cannot default on payment because he will be risking his house if he does so.

2. Unsecured Debt Consolidation Loan: If the debtor has nothing that he can give as collateral then he can opt for an unsecured debt consolidation loan. The advantage of this loan is that you will have only one creditor to pay off now. The amount repaid each moth goes both towards principal and interest unlike other debts were only the interest or principal is cleared and interest keeps adding on for the outstanding amount each month. However, one disadvantage is that since this loan is unsecured it charges a higher rate of interest compared to secured loan.

3. Credit Card Debt Consolidation: The debtor can exchange all his credit cards for a low interest credit card. He pan pay off all his debts with this card. Interest on this card will be kept very low for a year reducing the debt burden of the debtor. After a year, normal interest is charged. This breather of one year must be utilised properly for becoming debt free.

A debtor whose credit rating is undamaged and has the financial capability of repaying his debts, must always opt for debt consolidation compared to the other debt relief options available to him. This will give him a convenient repayment plan to become debt free without damaging his credit standing in the market.