Debt Consolidation vs. Chapter 13 Bankruptcy

 

Chapter 13 BankruptcyIf it seems as though you are drowning in a sea of debt and credit card bills, do not despair. There are options available that can help you get out from under the debts that seem only to get higher, no matter how much you pay off each month. A comparison between debt consolidation vs. Chapter 13 bankruptcy may help you decide which option is best for you. Both debt consolidation and Chapter 13 bankruptcy have their pros and cons. The goal is to take action that will put you back in the driver’s seat of your financial future. Either way, you should speak with a trained professional – either a debt counselor or a bankruptcy attorney – to assess your situation.

Be careful when choosing a debt consolidation company. Speak to and compare the services of a few different businesses. Check the Better Business Bureau and look for reviews of the company’s service online. Many bankruptcy attorneys can also recommend you to legitimate debt consolidators.

Benefits of Debt Consolidation

Debt consolidation reorganizes and combines debts from multiple creditors and creates one single loan to pay them off.

Debt Consolidation Pros:

You may be able to keep some of your credit cards
Simplifies debts into one monthly payment
May lower your interest rate and overall minimum payment
Protects your reputation -no court records of bankruptcy
Debt Consolidation Cons:

Monthly payments are typically much higher than Chapter 13 bankruptcy payments
It could take 2 – 5 years to eliminate debt
Debt is not reduced – only the payment terms are changed
There may be hidden fees that could cost more than paying your debts or filing a Chapter 13 bankruptcy
Does not prevent you from accruing more debt
Does not provide protection from enforcement of judgments, including wage garnishments and repossessions

Benefits of Chapter 13 Bankruptcy

It is easy to confuse debt consolidation with Chapter 13 bankruptcy because both options involve a restructuring of debts. You may be able to eliminate your debts in a Chapter 13 bankruptcy. The typical Chapter 13 bankruptcy restructures debts into a supervised repayment plan.

Chapter 13 Bankruptcy Pros:

Protection against harassment from creditors
May stop wage garnishments, foreclosures, and repossessions
Once the repayment plan is completed, you get a fresh credit start
No requirement to pay back 100% of your outstanding debt, and payments can be as low as $55.00 per month, with the remainder of the debt being forgiven.
All unpaid general unsecured debt is eliminated at the end of the payment period

Chapter 13 Bankruptcy Cons:

Bankruptcy filing remains on your credit report for seven years
May lower your credit score, but usually makes you a better credit risk
You may have to surrender some luxury possessions
You will be in Bankruptcy for three to five years until you complete your plan payments
You may not obtain new credit without court’s permission (such as a new car)
Bankruptcy is a matter of public record

Always speak with a bankruptcy attorney to determine the best course of action for your situation. Do not decide between debt consolidation vs. chapter 13 bankruptcy without professional advisement.

For more information, please contact Coral Springs attorneys Brodzki Jacobs & Associates, PL at (954) 344-7737 to schedule an appointment to discuss your situation.

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