Credit Counseling vs. Bankruptcy - Westgate Law

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Credit Counseling vs. Bankruptcy

Nearly every bankruptcy consultation will eventually lead to one big question: Is filing Chapter 7 bankruptcy a better option than credit counseling? It’s a big question with a big answer because they are both valid options and the only way to respond to the question appropriately is with a list of pros and cons.


Chapter 7 Bankruptcy – Pros:

All unsecured debts are wiped out (credit cards, medical bills, personal loans, etc.)

You can (in most instances) keep your home and your vehicle.

You may begin to rebuild your credit less than a year after you file in most cases.

You can often qualify for traditional home loans with respectable terms within a few years of filing if you take care to rebuild your credit.


Chapter 7 Bankruptcy – Cons:

The bankruptcy is on your credit report for 10 years.

For many, bankruptcy carries a stigma.

Filers could be denied credit in the future or offered credit at higher interest rates and fees.

Future employers could receive a negative impression if they pull your credit report.


Credit counseling is one of the most popular alternatives to filing for bankruptcy. When consumers turn to credit counseling, they make one monthly payment to a non-profit organization that then takes that money and turns around to pay the individual’s creditors.


Credit Counseling – Pros:

Avoid bankruptcy.

Consolidate all monthly bills into one payment.

Repayment period lasts a short time, 3-5 years.

Little to no effect on your credit report (verify this with your Credit Counseling agency of choice as some question this claim).

Enrollees are forced to stick to a strict monthly budget within their means, which is a great learning tool/experience for many.


Credit Counseling – Cons:

Many conclude that it doesn’t work.

Lenders still consider you a credit risk. Technically, credit counseling isn’t supposed to have a negative effect on your credit, but many argue that it does and that it takes 4-6 years for consumers to overcome the negative effect on their credit.

Evidence of credit counseling on your credit report could be seen by potential employers, leaving a negative impression.

Some may find that they are unable to consolidate ALL creditors in the credit counseling program. This can be unnecessarily confusing as some creditors will be paid through the program and others will be paid directly.


It’s a big decision and the answer is different for everyone. If you need further discussion of which is best for your financial situation, get in touch with one of the experts at Westgate Law today.

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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