Your bills are piling up. You know it’s time to do something. But, should you file bankruptcy or try debt consolidation? Knowing the difference between the two will help you make a more informed decision.
Here is how Bankruptcy compares to Debt Consolidation:
Which Offer The Best Results, Bankruptcy or Debt Consolidation?
It’s important to remember that Bankruptcy can allow you to discharge most, if not all, of your unsecured debt. In many cases, Bankruptcy will eliminate most of your debt without any payment. So long as you commit all of your disposable income to the Bankruptcy you will received your Bankruptcy discharge. In many cases, there is no disposable income, so there is no income to commit to a Bankruptcy and you receive your discharge without payment under a Chapter 7 Bankruptcy.
Bankruptcy discharges Unsecured debt, including:
- Credit cards;
- Personal loans;
- Payday loans;
- Most lawsuits;
- Medical bills;
- Utility bills
Filing bankruptcy will also require you to complete a credit counseling and financial management course that will give you a head start on rebuilding your credit and show you how not to end up in debt again.
Debt Consolidation, on the other hand, mostly fail. In fact, statistics show that over half of all people who sign up for debt consolidation plans drop out before completing the payment plan. Why? Because many people get sued by their creditors while in a debt consolidation plan.
First, debt consolidation plans many times do not accept all debt into the plan, such as payday loans and internet loans. Therefore, even though you are in a debt consolidation plan, you may still have unresolved debt. How can that work when you have to continue to pay to the debts with the highest interest rates while you are supposed to be committing your income to the debt consolidation plan.
Next, Debt consolidation plans operate by estimating how much they think they can settle each your debts that they accept into the plan. Then you stop paying your creditors and start paying the debt consolidation company. Most of the early payments goes to pay the debt consolidation company’s fees. As you continue to make the debt consolidation payments, once enough money is built up that the debt consolidation company believes it can settle one of your debts, it begins to negotiate with such creditor. Many of the initial debts do in fact get settled. But what about all of the rest of your creditors. By this time it has been many months, probably 12-18 months since any of your creditors have been paid. This about when you will get sued by the unpaid creditors and drop out of the plan. Remember, the debt consolidation company has already been paid, so you are free to leave the plan at that time. Not good.
Which Provides The Most Protection?
Bankruptcy is law of the United States. Under Title 11 of the United States Code, Bankruptcy also offers legal protection so that you don’t have to worry about being sued or harassed by your creditors while completing the bankruptcy process. This means Bankruptcy is mandatory for your creditors, they must participate in the process.
In contrast, your creditors are under no obligation to negotiate, nor participate in any debt consolidation program at all. Your creditors remain free to enforce your loan contract and promise to pay.