I never asked the question about whether I should do a personal loan or bankruptcy – only debt settlement or bankruptcy. I don’t even know if there was a world of personal loan options online back then to assist me in the battle of Chapter 13 vs Debt Consolidation, which shouldn’t have been a battle at all. I physically went from bank to bank to bank with no success in finding a smiley, happy banker to help me out and so then I chose bankruptcy over debt settlement for the legal protections. I mean… I’m a lawyer… who listened to a bankruptcy lawyer… who encouraged me to… yeah, you already know.
Well, you certainly know it If you’ve read Loan Camel’s About Us page, that I’ve been down the hellacious debt highway… struggled…. stumbled… and then got my shit together and moved on… now with credit scores in the 800’s and a re-born life. If it’s possible for an ADHD, neurotic Jewish guy from the asphalt and palm treed jungles of the 305 (Miami) area code to be born-again – I was – at least financially.
My primary issue was a super-expensive long distance divorce, both in lawyer fees and the fact that I drove a total of 500 miles every other weekend to visit my kids for years without ever missing a visit… and lived in hotels with them for a good 18 months of it on my weekends. Activities, dinners, lawyer fees… it adds up. Run into medical costs… it adds up. Buy a house and have home repairs… it adds up. Car repairs… it adds up.
So, yeah I F’d up. And with that said, I need to reiterate this point as I do in most of my posts as you cannot effectively change your financial life simply through debt consolidation loans alone. Consolidation loans simply help you move debt into a place that is more manageable so that you can pay it off at a date certain but YOU MUST CHANGE THE BEHAVIOR THAT GOT YOU WHERE YOU ARE, where possible.
I’ve seen Scarface about 150 times more than any reasonable person should. Is that offensive? That was random. Look – I have issues with “professionals” who don’t do the right things for the right reasons. I never got the advice I should have been given or at least I wasn’t made aware of opportunities then that are available and that I am aware of now. I walked into my lawyer’s office with credit scores in the 700’s, a 100% on-time payment history and a 6 figure income as well. And you don’t even need what I had financially in order to do now what I wish I had done then.
You’re with me now. You are not going to make an unnecessary financial choice because someone else can’t put themselves in your position and do the right thing for the best interests of the person in need. You’re at least going to have information. I never should have filed for bankruptcy. I’m still agitated and it’s personal. It’s my mission to bring clarity to and help people in ways I didn’t help myself let alone have others help me.
Real talk only on Loan Camel. If you want sterile reading pimped out by people who haven’t lived it, or at least don’t talk about their own failures, the Ivy League graduates run some pretty popular sites for you to get your sanitized reading on. Here, it’s personalized through the experiences of Daddy Poorbucks – the poor schmuck who’s been there too.
So are you looking at a rich man or woman’s type of bankruptcy or are you the down and out in Beverly Hills type of bankruptcy or wherever it is you are living? That’s really not a textbook way to look at it but it’s the way that helped me understand it all and keep a sense of humor… I mean, as best I could given the circumstances.
Look, a word of encouragement. Please try to keep your head up and take it in stride. I understand the sense of sadness, failure, helplessness and horror you may be feeling – been there. But you are doing something positive to re-align yourself in a better way. You are here while other people keep running on the treadmill to nowhere.
It’s much better to look at this as a new start and a new opportunity to get yourself back on track… And believe me, you will get through it and you will come out better for it going forward. All you are doing is financially reorganizing your life to move forward and succeed. Right now you simply need to decide how so we will take a look at the Financial A-Bomb known as bankruptcy or “BQ’ for short. There are 2 types of BQ’s, Chapter 7 and Chapter 13 and I’m not going to drag this out.
In short, with a Chapter 7 BQ, you do not have to pay back any debts but your assets are subject to forfeiture. It stays on your credit report for 10 years. This is the down and out version I was referencing earlier. This is full-blown thermonuclear financial war on everyone, yourself included. If you don’t have assets you want to keep and see no foreseeable way to pay back debts based on your current and future income, this is what you would be looking at as it protects you from all claims except for taxes, court-ordered support payments and student loan debt. No bankruptcy shields you from these items.
With a Chapter 13 BQ, which is what I did, and I refer to it as the rich man’s bankruptcy, you are able to protect assets from forfeiture but you will also go on a court ordered repayment plan to pay back a percentage of your debts to your creditors over a 3 or 5 year term. The BQ stays on your credit report for 7 years from the date of filing. So if you are on a 5-year payment plan beginning on January 1, 2020, your discharge should happen by January 1, 2025, and the BQ should be off of your credit report by January 1, 2027. This form of bankruptcy is more akin to conventional warfare than thetotal nuclear option. Chapter 13 candidates with decent credit scores (even lower to mid 600’s) are good candidates for personal loans.
I’m not even going to try to fake it. I’m a big fan of using personal loans to consolidate debts, particularly where you have open-ended credit card debts with high interest rates on revolving balances. You have to find a way to get off of the credit card treadmill and personal loans can be the linchpin in your plan.
In my post entitled Consolidating Credit Card Debt Into A Loan – How Personal Loans Can Benefit You, we talked about the savings capabilities that personal loans can provide people with decent credit. You can pay money less per month and have a date certain by which your debts are paid off while increasing your credit score. Assuming that you don’t go back to racking up credit card bills. For real, you are now showing a lower debt to credit ratio and you are moving money out of revolving debt accounts.
Personal loans make sense if you have an income and a score that you want to protect and just need help with a payment structure that fits your individual needs. Under these circumstances, it’s a much better option than bankruptcy, even if the BQ plan gives you a lower monthly payment. I literally cut my monthly payments nearly in half with a personal loan that paid off my debt in 5 years when I would’ve needed 22+ years to do the same thing at almost twice the monthly payment had I left my debts in my credit cards. You can check your personal loan rates through Loan Camel without impacting your credit here.
The keys to your decision lie in your present and projected income and having decent credit scores, as mentioned. This will be looked at carefully by potential lenders in a personal loan application. These 2 factors are what will put you in a position to get a personal loan that makes sense.
There are personal loans for people with bad credit but I really only would consider that if the high rate gives you a monthly payment that you can afford. If so, then it puts you in a position to pay off your debt without bankruptcy and improve your credit too. If you have a good steady income then this will allow you to move forward, cautiously, with this option in lieu of a BQ.
I’ve talked about the differences. In essence, bankruptcies stay on your credit report for 7 years (Chapter 13) or 10 years (Chapter 7) from the date of filing. It messes up your credit during that time and beyond that, your short credit history still takes time to overcome in order to boost your score.
Personal loans used to consolidate debt, keep you in good standing and increase your credit score if you do what you are supposed to do and not run up more debts. You will probably pay more per month on a consolidation loan than on a bankruptcy plan but if you can afford to do it, you won’t be annihilating your credit for ions.
Unique circumstances of the individual dictate choices. What once seemed so perplexing to me is now so clear.
When I was in law school I hated the Socratic Method maniacs who taught me the law by responding to my questions with a question. Help a brother out, yo! Let me sum it up for you the way I wish someone did for me. And this is not legal advice, this is just my personal opinion on what I would do.
For me, what once was a struggle is now so clear. Whatever you do, don’t give up hope in the fact that you will be moving forward for the better over the long term. You’re taking care of a difficult issue but it will get better. Be proud in your development, regardless of where you are coming from, be take solace in where you are getting to.
Had I read this article years ago, about the loan options available today, I would have made a much better financial life choice and avoided the 7-year credit killer of a Chapter 13 bankruptcy. I am hopeful that my experiences and my sharing them with you, give you hope and help you make a better, more informed choice than I made when I was panicking on how to best get back on track financially. Daddy Poorbucks, your Debtor-in-Chief, chose poorly so you don’t have to.
Now I have credit scores in the 800’s. You’re already ahead of where I was. You’re on your way. You got this.
For additional information on alternatives to filing bankruptcy, please see the U.S. Federal Trade Commission (FTC) article entitled Debt Relief or Bankruptcy?