It is a common misconception that financial counseling, or consumer credit counseling, is much better than a Chapter 13 Wage Earner Plan (in the United States) or a consumer proposal (in Canada) as far as your credit score is concerned.
In fact, they are all about the same.
Each of these options will have a negative impact on your credit report.
To prove this point, we went to the web site for Equifax, the largest credit reporting agency in the world. Equifax explains that information in the Public Records section of your credit report remains on your credit report for 7 years.
What is a public record? Here is the definition of a public record from Equifax:
The ‘Public Records’ section reports the presence of several types of items on your credit report, including accounts that have been turned over to a collection agency, matters of public record, bankruptcies, and similar items. …The different types of items that may appear in the ‘Public Records’ section of your Equifax Credit Report™ are:
A legal agreement in which a consumer is declared fully or partially unable to repay debts. In return for full or partial release from those debts, the consumer may sacrifice some property or agree to a payment plan. There are two different types of bankruptcy for consumers: Chapter 7 and Chapter 13.
A voluntary method of debt restructuring in which a person makes a lump sum payment to a financial counseling agency who distributes the funds to creditors. Consumers in financial counseling may have an arrangement to pay all or part of their consolidated debt.
Equifax goes on to state that:
Chapters 7, 11, and non-discharged or dismissed chapters 12 and 13 remain on file for 10 years from the date filed
Accounts paid as agreed remain on file for up to 10 years from the date of last activity (DLA)
In other words, whether you do consumer credit counseling or a Chapter 13 Wage Earner Plan the note on your credit report stating that you have filed the procedure is likely to remain on your credit report for up to 10 years. So which option should you choose?
Since your credit report is likely to be the same in either case, you should use other factors to decide on the correct option for you. In most cases a Chapter 13 Wage Earner Plan results in you paying less than the full amount of your debts owing, and so that may be the preferable option. However, professional advice is recommended, so consult a bankruptcy attorney or credit counselor to help you decide which bankruptcy alternative is right for you.
Posted by Editor Bankruptcy Alternatives @ 1:54 pm