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Bankruptcy Vs Debt Consolidation

Do You Want More Information On Debt Consolidation And Bankruptcy From A Texas Bankruptcy Attorney

Bankruptcy vs. Debt Settlement

The above benefits of filing Chapter 13 bankruptcy are just some of the ways a personal bankruptcy can help you get the debt relief you need. Our bankruptcy lawyers in Dallas and Fort Worth will explain the other pros and cons of of Chapter 13 during a free consultation.

Contact Leinart Law Firm by calling 232-3328 or 426-3328 to request a free bankruptcy consultation with a Texas bankruptcy lawyer.

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Is Bankruptcy Right For Me

Bankruptcy certainly isnt for everybody. But

If you are overwhelmed with monthly billsif you simply cannot make ends meetif you are sick and tired of the burden of debt, then bankruptcy could be an option.

Bankruptcy is an option when you have exhausted other possibilities. Youll have the opportunity to reexamine your budget, end your reliance on credit cards, and rediscover your peace-of-mind.

Its a perfectly viable option.

You Need Income For A Debt Management Plan And Chapter 13 Bankruptcy To Work

Debt management plans and Chapter 13 bankruptcy are both essentially structured repayment plans, so neither will work if you dont have at least some income to work with.

With a DMP, youll work with a nonprofit credit counselor to review your budget and determine what kind of repayment plan you can afford. With a Chapter 13 bankruptcy, the repayment plan is based primarily on your disposable income .

If you dont have any income and dont anticipate having income for the foreseeable future, you may be better suited for a Chapter 7 bankruptcy.

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Bankruptcy Provides A Fresh Start

The other main advantage of filing for bankruptcy is that it wipes the slate completely clean. Not only is the financial burden lifted when your debts are discharged so is the heavy psychological burden that comes from months, years, or even decades of sleepless nights worrying about how to make ends meet. With most of your significant debt sources eliminated, you can start clean again by keeping up timely payments on your loans. By staying on top of your finances, you can quickly begin to rebuild healthy credit.

Debt consolidation does impact your credit score to the same degree as filing for bankruptcy. If you are frequently behind on your bills, which is true of many people considering Chapter 7 or Chapter 13, your credit is already severely damaged. Bankruptcy gives you the ability to start improving the situation by removing many of your financial obligations. Additionally, if you combine all your debt into one loan, it might take a considerable amount of time to complete your payments. A bankruptcy, even a Chapter 13, is typically a much faster process. This allows you to begin building good credit quicker and move on with your life.

When To Consider Chapter 13 Bankruptcy

Bankruptcy vs debt consolidation

Chapter 13 allows debtors to catch up on missed payments while holding on to personal property, such as a home or a car. Chapter 13 also allows debtors to hold onto nonexempt property precious valuables that would have to be liquidated to pay creditors in a Chapter 7 filing.

In short, if you have above-the-median income, you could meet your obligations if they were reorganized, and there are certain things with which you cannot bear to part your inherited Rolex or vintage Corvette but youre otherwise in way over your head, Chapter 13 is for you.

Debt settlement only works if all the creditors are willing to participate. If not, you might still have to file for bankruptcy, which treats all creditors as equals. The bankruptcy trustee could increase your monthly payments to take care of the earlier settlements. As a result, Chapter 13 monthly payments might be lower than the combined monthly payments from debt settlements.

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What Are The Advantages Of Debt Consolidation

Debt consolidation has a number of different advantages, namely condensing multiple different loans into one:

  • Just one payment instead of multiple different payments to make
  • A lower likelihood of missing a payment or being late each month
  • A greater chance of a lower interest rate due to having a singular payment
  • Debt often repaid faster due to fixed payments and a clear deadline for the debt consolidation loan
  • For debt settlement programs, there is a potential for reduced debt and for a consumer proposal, there is often a reduction in debt of up to 80%
  • A stay of proceedings is triggered when filing a consumer proposal
  • You are able to keep your assets without surrendering them
  • You avoid bankruptcy and its consequences on your credit report

Is Debt Consolidation Better Than Bankruptcy Or Vice Versa

As with many questions in the financial realm, this one doesnt have a definitive answer whether debt consolidation or bankruptcy is best for you depends on your specific circumstances.

If your financial situation is relatively stable and you have merely gone a bit overboard with the credit cards, debt consolidation can help you get a handle on everything.

As this option is less severe than bankruptcy, it is likely a better choice in this situation.

However, if you are in serious financial trouble and find yourself drowning under your debts, a debt consolidation loan may only prolong the inevitable. In extreme scenarios, bankruptcy is likely a smarter option.

Moving debt around will only leave you struggling for a longer period, while bankruptcy can get you back on solid ground more quickly.

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Con: You May Continue A Cycle Of Debt

Although an unsecured personal loan could wipe out some or all of your existing debt, youll still be responsible for paying off new debt.

To break the cycle of debt, its wise to stop borrowing money as soon as youve consolidated your debt. Start by cutting up your credit cards and re-evaluating your spending patterns.

Why Chapter 13 Bankruptcy

Pennsylvania Bankruptcy Lawyer – Bankruptcy vs Debt Consolidation

Chapter 13 bankruptcy has many benefits compared to debt consolidation. Chapter 13 bankruptcy allows you to restructure unsecured debt into a three- to five-year payment plan. All creditors have to comply as it is court-ordered. If you are facing home foreclosure or motor vehicle repossession and creditor harassment, Chapter 13 automatic stays all of these.

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Why Call Bucacci & Simonian:

We are known as one of the best bankruptcy attorneys in Southeastern Massachusetts serving the Bristol County and Plymouth County areas. Please inquire with anyone as to our reputation. Reputation is everything and we are very proud of ours. We have received numerous awards from various agencies and courts including the Bankruptcy Court in Boston, Massachusetts.

Using our knowledge and skill we have had several clients complete their five year Chapter 13 bankruptcy plans where they own their home FREE & CLEAR OF MORTGAGES. We understand how important it is to save clients homes from foreclosure, keep their cars from being repossessed and stop creditors from suing them and attaching their wages or attempting to seize their assets. This can be stopped almost instantly and we make every effort to be very available to your clients and can accommodate emergency situations. One of our most famous cases involved saving a clientss multi-family home.

Con: It Might Not Be The Fresh Start You Imagined

Whether youre considering Chapter 7 or Chapter 13 bankruptcy, it wont offer you the clean slate you might have been expecting.

For one, its unlikely youll discharge every cent of your debt. Student loans are difficult to discharge via bankruptcy, for example.

Even if youre in the minority of consumers who could exit a proceeding debt-free, youll be left with little to no assets and a credit report in need of serious repair.

Consider that if you tried to borrow a federal Parent PLUS student loan, for example, the Department of Education would deem you to have adverse credit history if your bankruptcy occurred within five years. Private lenders would also be skeptical of a credit report showing a recent bankruptcy.

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Bankruptcy Truly A Fresh Financial Start

If you do file for Chapter 7 bankruptcy or Chapter 13 bankruptcy, all efforts to collect payment from you must be frozen until the proceedings are resolved. In a Chapter 7 bankruptcy, your unsecured debts, with some exceptions, will be wiped out altogether. . Your financial problems will essentially be wiped out and you will have a fresh financial start.

Attorney John Hargrave has been helping people find solutions to difficult financial problems since 1977. So-called debt-settlement companies have victimized some of our law firms clients.

Mr. Hargrave has been a bankruptcy trustee for many years, administering and supervising the resolution of more than 15,000 bankruptcy cases. As a trustee, he has seen many people, just like you, who were trying to do the right thing and pay their creditors some of what they owed. These people used debt settlement companies and ended up paying a lot of money towards fees for the debt settlement companies and saw none of that money go to their creditors. These people ultimately filed for bankruptcy protection. If they had filed for bankruptcy protection instead of paying a debt settlement company, they would have had all that money to start their new life with.

Bankruptcy Vs Debt Consolidation Comparative Table

Debt Consolidation Vs BankruptcyâWhat
Basis
1. Bankruptcy is a difficult process.2. Damages the credit score.3. It has tax effects involved in this process. 1. The full amount owed by the debtor needs to be repaid to the creditor.2. The creditor can file a lawsuit against the debtor even if it accepts payments or works with the debtor.3. Interest needs to be paid on the debt amount.
Length of Process According to the bankruptcy chapters, the process size for chapter 7 is up to six months, and chapter 13 takes about 3 to 5 years. The duration of the debt consolidation process is from several months to years, depending on the debt consolidation loan term.
Tax Effects The tax owed by the debtor is refunded, but the money is delayed, and when the debts are discharged, when the debtor needs to pay tax. There are no consequences of a tax on debt consolidation.

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Is There A Better Debt Relief Option

When debt is a problem, you may find that neither debt consolidation nor bankruptcy is the right solution.

Heres another idea: Consult a consumer credit counseling agency. These nonprofit organizations can help you understand your options and will recommend a plan to get you out of debt.

If you dont have good credit and may have trouble qualifying for a lower-APR debt consolidation loan, a credit counselor can provide expert advice and work with you to come up with a debt management plan. The counselor also can help you explore whether bankruptcy is the best choice for your situation.

What Is Debt Settlement

While debt consolidation allows you to combine multiple debts into a single loan, debt settlement utilizes a very different strategy, When you settle debt, youre effectively asking one or more of your creditors to accept less than whats owed on your account. If you and your creditor reach an agreement, then you would pay the settlement amount in a lump sum or a series of installments.

The advantage of debt settlement is that you can eliminate debts without having to pay the balance in full. This may be an attractive alternative to bankruptcy if youre considering a Chapter 7 filing as a last resort when in dire financial straits.

Its important to remember, however, that creditors are under no obligation to enter negotiations or accept your offer. Also, youll need to keep in mind that offering a settlement requires you to have cash on hand to pay agreed-upon amounts. If you dont have the cash to negotiate with, then seeking a debt consolidation loan may be the better option.

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Debt Consolidation Pros And Cons

The debt consolidation process will be different depending on which method you use. However, all types of debt consolidation are usually better for your credit than other relief options as they dont add a negative item to your credit report. This is especially true when you compare consolidation to bankruptcy. The biggest con of consolidating your debt is how long it takes. You save your credit score, but you will be making monthly payments for a few years.

Chapter 13 Bankruptcy Vs Debt Settlement Companies

Filing Chapter 13 Bankruptcy VS. Debt Consolidation

A debt management plan normally does not include credit counseling. You make debt payments over time. The debt consolidation companies take a portion of that payment for themselves, and debt is repaid at about 60-70% of the amount owed.

Chapter 13, however, will repay unsecured creditors often at less than 50%. A Chapter 13 plan will not be approved and confirmed unless feasible. With debt settlement companies, as long as you pay, it will be approved whether you can afford it. In a Chapter 13 bankruptcy, almost all debts can be included. Child support, student loans, and income taxes less than three years old can be repaid over time and caught up or discharged.

Debt settlement cannot force creditors to take what you offer. No law says they must agree with your debt settlement offer. With a Chapter 13 bankruptcy, you can strip and remove a second mortgage. Try getting a second mortgage to take 10% of what you owe in exchange for their mortgage when they have no equity in the home equity loan. It isnt happening. In a Chapter 13 bankruptcy, however, you can force it.

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How Does Debt Consolidation Work

Lets take a closer look at a few types of debt consolidation and how they work:

Debt Consolidation Loan: You could reorganize your debts by replacing them with a single debt consolidation loan, which might take the form of a personal loan or home equity loan. You pay off your existing debts, then roll them into the consolidation loan. Debt consolidation simplifies your debt and can cut your interest costs if you qualify for a lower than youve been paying on your previous debts.

If you have good enough credit, you might be able to consolidate debt by transferring your existing balances to a 0% APR balance transfer credit card. Note that the cards are interest-free for a limited time, so you need to make sure you pay off the entire debt before the regular APR kicks in.

Debt Consolidation Through Credit Counseling: A nonprofit consumer counseling agency can put you on a debt management plan that will consolidate your debt into one big monthly payment to the agency, which then pays your creditors. You get points for making on-time payments, your credit score wont be affected, and you can save on interest and fees.

Pro: You Can Set An End Date For Your Debt

Through debt consolidation, you work with your lender to choose a fixed repayment term. Many personal loan companies offer a range of repayment terms that are five years or less.

You could also find lenders offering longer repayment terms to lower your monthly payment amount. Be aware that the longer your term, the more interest youll pay over time.

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Who Debt Consolidation May Be Best For

  • Individuals who are able to pay back their debts: While bankruptcy can clear away some of your debts, consolidation involves paying it back under new terms while protecting your credit.
  • Consumers with a diverse amount of credit cards and debt: The goal of debt consolidation is to reduce the interest on your debts and to get multiple debts under a single loan umbrella.
  • Borrowers with good credit: The better your credit, the better your chances of securing a debt consolidation loan. And the higher your credit score, the lower your interest rate is likely to be.
  • Disciplined borrowers making timely payments: Borrowers with on-time payment histories generally have higher credit scores and, thus, can lock in lower interest rates. They will also need to continue making disciplined payments on the personal loan for the duration of its term.

What To Know About Debt Consolidation

Debt Consolidation vs Bankruptcy

In most cases, debt consolidation involves taking out a personal loan to pay off your other debts. Youll then only have one debt with one monthly payment to worry about. In some cases, you may qualify for a lower interest rate than what you were paying on your other debts, which can also save you money in the long run.

Debt consolidation can also be done in other ways, including using a balance transfer card to manage or a home equity loan or home equity line of credit to pay off your debt.

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Your Credit Rating Takes A Hit

The fact that you have fallen behind, even though you have done it purposely in cooperation with the debt settlement company, has an impact on your credit report.

Finally, if the debt consolidation company is able to negotiate a reduced debt for you, your account will be updated as Paid-Settled or Charged-Off Settled, which takes away from a good credit report. This appears on your credit report for many years.

Some Of The Pros And Cons Of Debt Consolidation Companies Include:

  • A debt consolidation company charges a monthly fee for its services. The monthly fee is deducted from the payment you make each month and can be very costly.
  • Although unlikely, you may have a lower monthly payment for consolidated debts, however one of the differences between debt consolidation vs bankruptcy is that in bankruptcy you do not pay interest on unsecured debts. In fact, most people do not even pay back any unsecured debt at all. You can pay thousands of dollars in interest over the term of a debt consolidation agreement.

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