Bankrupsy vs loan consolidation

[water1111]

I have a cousin who is 25 years old and wants to file bankrupcy.

He has debt but it is around $10,000. He is not a stable kid. He can't keep a steady job and when he does work he doesn't work full time and of course doesn't make very much money.

I guess he has talked to loan consolidators and attorneys about filing bankrupcy. The people who have given him advice told him that there wasn't any difference between them in respect to your credit score. In other words, both hurt your credit score equally.

Now, I told him he shouldn't file bankrupcy because his debt really isn't that bad to warrant it. Also, paying a consistent loan consolidation bill each month would help his credit.

I'm really not sure if I gave him the right advice............SO what are the pros and cons of loan consolidation vs bankrupcy?

[Broken Arrow]

WHAT? Only 10k, and he wants to file? You're right, he's not stable. There are people out there that owe close to 500k, and only then are they finally thinking about filing. (Actually, hardship will probably have more to do with it than an outstanding balance.)

Also, I don't think it's true that they hurt your score equally. I don't have any details handy, but I'm fairly certain bankruptcy will hurt him harder and for many more years than being delinquent.

Finally, loan consolidations in itself will not hurt your credit. Assuming that your cousin qualifies, it merely lumps several different debts into one large one. Assuming that the consolidation loan's interest rate is reasonable enough, and your cousin can start paying it on time, then he shouldn't have to worry much, especially 10k.

Either that or I'm in really, really deep doo-doo with my 27k.

[PRICEPLUS]

Well, I guess I am of the opinion that a bankruptcy is a last resort method. I have always believed in paying if possible. If the debt becomes so onerous that one will never get out from under then it becomes a viable option. Since I am not privy to all particulars I am just offering how I would handle it given the parameters noted here!

[creditcardfree]

I think your advice was correct.

$10k is a lot to someone who can't hold down a job. Since you know him, is there any advice or help you can provide in regards to his employment situation?

I would avoid bankruptcy at all costs.

[HalMd]

I agree with everyone.

Gobs of people have $10,000 credit card balances and worse. I would not even remotely consider Bankrupcy. Unless we're missing something here...

[water1111]

I think what it is with this particular person is that it is hard for him to hold down a consistent job. So any payment above the basic necessities would be too much for him to handle. So he thinks.

Also, I think he wants one less thing to worry about so bankruptcy is an immediate short term solution. In his head, he can erase all his problems for a moment.

I wasn't sure if my advice was right or not so thanks for your comments.

[vishenda]

Consolidating his debts into one payment is better. His credit report would show all but that one debt paid off and as long as he makes his payments on time, that one helps his credit.

If he files bankruptcy, all the debt is cleared, but it is on his record for seven years. It will be at least two years before he can get a loan without a ridiculously high interest rate.

In either case, he needs to be stable and able to keep on track before he gets the loan or files bankruptcy, otherwise he'll end up back in the same place. Withhout a steady job, he will have serious difficulty hetting a loan.

[abowers]

I consoldiated almost $17k in undergrad loans and my monthly payment was $123. I was paying this while I was 21, in my first apartment after graduating from college, working anywhere from 30-45 hours per week at $8/hour. This is at a low interest rate, as I consolidated through my lender while still in college, but $10k is even less than what I had, the payment can't be too bad...

He needs to figure out how to get any job, even if it's a crappy job so he can start being responsible and pay his bills.

[dossin1]

IMO I don't think either option will "help" him because until he gets a stable job, what will keep him from running up debt and being in the same situation again. I have cousin who has two bankruptcies and is contemplating a third. Also, a friend who has had 2 loan consolidations and still is running up new debt. I think he needs credit counseling, a good service that will really help him develop a budget and work with creditors to help him pay off debt.