San Francisco, California, has become one of the central hubs of the Californian economy and that of the United States as a whole. Ranked as the 11th city with the most billionaires in the world, San Francisco has benefited perhaps more than any other city in the U.S. from the scintillating tech economy. But the city is not just limited to technology. Companies with major presences include Bank of America, Wells Fargo and Anchor Brewing, illustrating the city’s surprisingly diversified economic base. At 3.4%, San Francisco has one of the lowest unemployment rates of any major city in the United States. By all measures, the city is a thriving boom town in the midst of an economic rally that has hardly slowed for the last 165 years.
But all these superlative technical measures obscure some other, harder truths. California has the largest absolute number of bankruptcies of any state, resulting from some of the highest costs of living and largest wealth gap in the U.S. On top of this, California has a large undocumented immigrant population which drives low participation rates in the official economy. All told, the rosy economic picture painted by the nation-leading statistics largely reflects benefits which have accrued to the top quartile of income earners, leaving the society’s bottom rungs struggling.
With over 200,000 bankruptcies per year, California in general and San Francisco in particular have many residents who are fighting mightily with debt. For these people, bankruptcy often presents a strong temptation as a means to relieve the crushing burden of inescapable debt. However, there are other options.
Debt consolidation can often provide a way out of credit card and other unsecured debt. What’s more, debt consolidation almost completely avoids the nastier aspects of declaring bankruptcy.
Bankruptcy – the nuclear option
As the U.S. knew during the Cold War, nuclear bombs can quickly end wars, but the consequences of using them can be so devastating to both sides that they should be avoided at all costs. Likewise, declaring Chapter 7 can get rid of all unsecured debt but only at the price of tremendous collateral damage to the debtor for the rest of their life.
But sometime a debtor has no choice. Chapter 7 is appropriate when the debtor has irresolvable income or cash flow problems, such as in the case of serious disability, or when the debt load is so extreme that it’s unlikely to ever be paid off, even with concerted effort and optimal management. One example of such a case is a person who is involved in an accident, runs up huge medical bills and simultaneously is disabled to the point of not being able to maintain their old income. Under such a situation, Chapter 7 may be the only reasonable way out.
However, there are many reasons to avoid Chapter 7, at all costs. Once bankruptcy is declared, the debtor will not be able to get a mortgage or an auto loan for seven to ten years. They will likely lose any security clearance they have and may find it difficult to get hired at many jobs. The bankruptcy will be on their record for the rest of their lives, and it is a valid and legal question for employers to ask about past bankruptcies. Many employers look at non-payment of debts as a potential red flag.
On top of that, it doesn’t eliminate all types of debts. Student loans, alimony and child support are generally not eliminated by declaring bankruptcy. In some cases, the debtor may even lose their house and cars.
One alternative to Chapter 7 is debt consolidation. Like bankruptcy, consolidating debts with a good, professional company can reduce or even eliminate some unsecured debts. However, unlike bankruptcy, debt consolidation will almost always allow the debtor to maintain their credit rating and to continue living their accustomed lifestyle.
Debt consolidation is particularly well-suited for those debtors with unsecured debt who have a viable game plan to prevent repeating the behavior that led to the debt in the first place and who have sufficient income to begin paying down their current debts without incurring more. For these debtors, consolidation can save tens of thousands of dollars and allow them to exit, debt free, on the other side, with their credit rating, houses, cars and lifestyle intact.