Debt Relief Vs. Chapter 7 in Michigan

A person who is facing large amounts of debt in Michigan has several options for managing this debt, all of them relatively unsavory. The two main choices are between a form of debt relief, in which the person pays off all or part of his debt, and declaring. Bankruptcy will allow the person to dismiss a number of debts. However, it won't dismiss all debts and it comes with a number of steep downsides in Michigan.

Debt Relief Advantages

There are various forms of debt relief, including credit counseling, debt settlement -- in which a debt is settled with a creditor for less than the full amount -- and debt consolidation, in which debts are consolidated into a single debt. The advantage to these methods is that they are cheaper and, used wisely, they can prevent a person from having her money seized by creditors.

Debt Relief Disadvantages

The downside to debt relief is that that it is not always effective. A person may be deep enough in debt that counseling will not help him. Similarly, not all debts can be negotiated down, as a creditor may not be willing to accept partial payment. While debt consolidation can help reduce the size of monthly payments, not all debts can be consolidated, and sometimes fees will actually increase the debtor's overall load.

Chapter 7 Advantages

In Michigan, a person whose debts outstrip his assets may be allowed to declare bankruptcy. The advantage of doing this is that the person will have a number of her private debts dismissed. If approved, it will also cease all collection actions. In Michigan, it is relatively difficult for a person to lose his house if he declares bankruptcy, as compared to some other states. Therefore, bankruptcy can provide financial breathing room, allowing a person a new start.

Chapter 7 Disdvantages

Bankruptcy does not allow a person to dismiss all debts. A person must still pay most of her debts to the government, including for unpaid taxes. In addition, bankruptcy will wipe out a person's credit score, making it difficult to qualify for low-interest loans for a time. In addition, not all people qualify for bankruptcy. Finally, in a chapter 7, a person may lose a number of his personal possessions to creditors.