Credit Counseling vs. Bankruptcy: Which Comes Out on Top? - Westgate Law

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Credit Counseling vs. Bankruptcy: Which Comes Out on Top?

Is credit counseling as damaging as a southern California bankruptcy? Almost every individual interested in bankruptcy and the discharge of debt that it provides approaches their bankruptcy attorney with this question before they file. It’s difficult to provide a standard answer to suit all situations, but most who are in search of this information will find it most useful to compare a list of pros and cons.

The Chapter 7 Bankruptcy:


  • Wipes out unsecured debt: credit cards, personal loans and medical bills.
  • Petitioners are often able to keep their home and their vehicle.
  • Bankruptcy cases should be closed within six to eight months and petitioners can begin to rebuild their credit.
  • Within two to three of years of filing, most bankruptcy filers can be approved for a home loan.
  • The discharge available through Chapter 7 bankruptcy can drastically relieve financial pressure on an individual or family on a budget.


  • Bankruptcy is noted on your credit report for 10 years.
  • For some, filing bankruptcy comes with feelings of failure, etc.
  • After bankruptcy, damaged credit will result in denied credit and/or higher interest rates as a result of a lower credit score.
  • Some potential employers review prospective employees’ credit reports and the existence of a bankruptcy on the report could be viewed as a negative during the application process.

Credit Counseling:


  • You don’t need to file for bankruptcy.
  • Bills are consolidated into one monthly payment for a specified period (usually three to five years).
  • It shouldn’t negatively affect your credit score (verify this with the counseling agency prior to enrollment).
  • The program requires that you live within your means/on a stringent monthly budget, which should help to improve financial prowess and avoid future financial trouble.


  • Credit counseling often doesn’t work.
  • Lenders will still consider you a risk as credit counseling will show up on your credit report. Most lenders will not provide funding until the counseling period ends and some credit has been re-established (typically four to six years after the program begins).
  • Prospective employers can also see credit counseling as a negative.
  • In some cases, you may not be able to consolidate all creditors. This leaves you paying some creditors directly and others through the agency.

If you are in financial distress, take a proactive approach. Both options have positives and negatives; it’s hard to see either as a perfect situation because they aren’t perfect. To discuss your options and gain the help of an experienced southern California bankruptcy attorney in pinpointing what’s best for you, contact Westgate Law.

About the Author

Justin Harelik

Justin has a singular goal: to get people out of financial distress and move them to financial stability and prosperity. He does this by combining 15 years of in-depth experience in bankruptcy, credit management, debt negotiation and student loan modifications, and he does it with both English and Spanish-speaking clients.

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