Credit repair and bankruptcy sit on opposite ends of the financial spectrum. While both are options for individuals behind on their debts, bankruptcy and credit repair have opposite outcomes. Credit repair fixes credit while often leaving the consumer with legal obligations to the debt. Bankruptcy disposes of legal obligations to debts, but severely damages credit scores. Deciding the best option depends on what benefits fit your list of financial priorities.
Credit Repair
Credit repair is far cheaper than filing for bankruptcy, but requires much more work. The basic premise of credit repair is that if a creditor reporting a bad debt on your credit report must prove the debt belongs to you, or remove it. To do this, dispute ownership of each debt with the creditor reporting it and the credit bureaus. The credit bureaus will investigate the debt. If the debt cannot be validated, it vanishes from your credit report. Depending on the age of the debt, a creditor can sue to recover the balance.
Bankruptcy
Although a death sentence to your credit report for seven to 10 years, bankruptcy grants you the security of never having to worry about being sued over a debt. Bankruptcy can also temporarily prevent foreclosure or repossession -- something unavailable with credit repair. If you have had property repossessed or have lost your utilities, the bankruptcy court can require these things be returned or restored until an official court ruling. Creditors, too, are forbidden from contacting you after bankruptcy proceedings have begun.
Legal Limitations
Before engaging in either credit repair or bankruptcy, check your state's statute of limitations, or SOL, for unsecured debt. After a certain amount of time (three to five years, in most states), you are no longer required to pay a defaulted debt. Filing for bankruptcy over these debts serves no purpose than to cause stress and further damage your credit score. Check whether the SOL has expired on your unsecured debt before opting for bankruptcy. Focus on debts outside the SOL during credit repair because of the lower risk of lawsuits that they present.
Considerations
Negative notations on your credit report are subject to a maximum seven-year reporting period. After the reporting period expires, the debts "drop off" and no longer factor into your overall credit score. If you opt for credit repair, rather than bankruptcy, creditors may still contact you, even if the SOL and reporting period on the debt expire. To stop this, request in writing that they no longer contact you. They are bound by the Fair Debt Collection Practices Act to abide by your request. Credit repair rarely flushes every negative item from a credit report, but it is more efficient in the short term than filing for bankruptcy and waiting up to 10 years for a clean credit report. Bankruptcy is more efficient when it comes to quickly disposing of debt. If your credit score is unimportant to you, this is a quicker and easier method of dealing with overwhelming debt.
Effects
Credit repair, if successful, and bankruptcy, if granted, go as planned, both have rewarding results. A successful bankruptcy relieves the constant stress of being deep in debt. It will also give you peace of mind that your home is safe from foreclosure and your wages are protected from garnishment. When you reapply for credit, however, expect much higher interest rates. Credit repair can have equally beneficial results. When done properly, credit repair can help you qualify for a loan, reduce the interest you pay and end incessant calls from creditors. Outside of bankruptcy, only time can end your legal obligation to your debts.
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