Differences Between Debt Consolidation and Bankruptcy
Oftentimes consumers fall into the trap of thinking a debt consolidation loan is better for them overall than filing Chapter 7 bankruptcy. While there may be some benefits to this option, it is important to weigh disadvantages of debt consolidation versus bankruptcy filings. One distinct advantage of debt consolidation is privacy but for many consumers, this benefit is wiped out with the other potential problems it can cause. Before you make a final decision between bankruptcy and debt consolidation, you should consider contacting a bankruptcy attorney in Kennesaw, GA for advice.
For a free legal consultation, call (770) 792-1000
The bankruptcy process: Clean and straightforward
Bankruptcy is a fairly straightforward proposition. You make an appointment with a Chapter 7 attorney in Kennesaw, GA who will walk you through the process of a means test, you take the required credit counseling courses and your attorney files the necessary bankruptcy paperwork with the courts. If the court agrees that you are unable to meet your financial obligations, they discharge your debt and you walk away with a clean slate. Keep in mind, you may have some struggles rebuilding your credit rating but the bottom line is you have no debt to be concerned about.
The debt consolidation process: Messy and not always beneficial
When a consumer who is in debt contacts a debt consolidation company, the first thing they will have to do is provide copies of all of their existing non-secured debt. It is important to understand the only debt that may be consolidated is debt that is not secured by real estate or other physical property. The company will then determine how much debt the consumer has and begin the process of drawing up an agreement. The terms of these agreements are very important and it is imperative that you read them carefully. Some of the terms a consumer debt agency agreement may contain include:
- Negotiated debt settlement – in some cases, the agency may try to negotiate with your creditors to lower the total amount owed. Should this occur, unlike a Chapter 7 bankruptcy, you will be responsible for reporting the settled amount as income on your federal tax returns.
- Monthly carrying charges – in nearly all cases, when you use a debt consolidation program, you will find the company charges you a monthly fee for their services. In a number of cases, those who are in debt will discover they are paying substantially more for monthly fees than they might be saving if they continued to pay their credit card debt on time.
- Cross collateralization – in too many cases, consumers are lured into debt consolidation programs and are unaware they have allowed a lien to be placed on their real property. This could result in the loss of a home, automobile or other property if the payments on the debt program are not kept up. Keep in mind, this can happen even if the payments on the property are current at the time of the default on the debt arrangement.
When a consumer seeks protection from debt, and hires a bankruptcy lawyer in Kennesaw, GA they also gain some protection from creditor harassment. Keep in mind, when you file for Chapter 7, there is an immediate stay put in place. Creditors can then be informed that you have filed for protection and are unable to continue contacting you about your debt. With debt consolidation programs, there is no protection from this type of contact outside of the basic rights offered under the Consumer Protection Laws.
Debt consolidation may be an option for some debtors but it is important that before you make a decision between Chapter 7 bankruptcy filing and debt consolidation you understand what protections you are giving up and what the potential negative consequences are of each. For most consumers, debt consolidation programs are not the answer for someone who is in a great deal of debt and finding it hard to meet their obligations.
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