The credit crisis has lead to many Americans facing increasingly out of control debt. People looking for a solution often consider debt consolidation as an alternative to bankruptcy. Each approach has distinct advantages and disadvantages, but not everyone understands the legal and technical consequences involved in deciding between the two.
Debt consolidation or debt management usually means working with a credit counseling company who specializes in working with creditors to arrange lower interest rates and/or monthly payments on delinquent credit accounts. Generally, you enter into an agreement with the credit counseling agency and make your payments directly to the agency, which then pays your creditors. Debt consolidation may also refer to obtaining a large loan to pay off smaller loans, which does not reduce debt unless you obtain a better interest rate.
However, debt consolidation can be expensive and full of problems the counselors may not fully disclose. Not every creditor and not every type of debt is open to working with the debt management companies, and the consolidation process extends the payoff process over years. Depending on the Company you use, some will only deal with one creditor at a time, leaving you open to continuing calls and even lawsuits from those down the list. Further, these types of programs typically do not include any debt other than unsecured debts like credit cards. If you have a mortgage or a car note, you cannot use these programs to help you, and you cannot protect the property that secures the loan i.e., your house and your car. Last, but not least, if a collection lawsuit is filed against you by a creditor you thought was included but was in fact down the list, the Company will generally not be of any help and tell you it is your responsibility.
Filing bankruptcy is a worthwhile alternative. One advantage of a Chapter 7 bankruptcy is that it completely discharges your legal obligation to pay most unsecured debts, which means you do not have to pay them back. And, all creditors must be included. Chapter 13 bankruptcy allows repayment of past due debts over time, similar to a consolidation plan, but it has the added legal protection to prevent creditors from repossessing secured property like your home or car. Like Chapter 7, all creditors must be included.
Bankruptcy also offers you the chance for a new beginning. You are no longer required to pay the discharged debts. Although the bankruptcy will show up on your credit report, the same is true of most debt consolidation programs.
A bankruptcy attorney at The Sader Law Firm can explain your debt relief options and make sure you enter into the plan that best serves your needs. Contact Neil Sader today at 816-281-6349 for an in-depth review of your financial situation.