Debt Consolidation vs. Bankruptcy

Most people face financial difficulty at certain times in their lives. But for some people, the amount of stress caused by substantial debts can be completely overwhelming. If you have reached the point in your finances that you are in way over your head and can’t find a way out, you may want to consider bankruptcy or debt consolidation.

While the term bankruptcy has often had negative connotations, it can actually be a great way to get relief and a fresh start financially. If you think bankruptcy or debt consolidation is right for you, there are a few things to consider.

There Are Differences

First, you must understand the difference between bankruptcy and debt consolidation. When you consolidate your debts, you reorganize all of your various debt payments into one payment. You can either choose to consolidate debt through a secured loan or use an unsecured loan. Most of these debt reorganization loans are on a 3 to 5 year plan. Many people under extreme stress from debts find it incredibly beneficial to have just one payment rather than trying to balance several credit cards and other debts.

With debt consolidation, you can protect your reputation and credit score. You may also be able to keep your access to your credit cards. While most people wanting to consolidate debt are trying to avoid more debt, there are always exceptions. No one can prepare for life’s unexpected emergencies. Credit cards allow you to have an option for payment if an emergency should arise.

Bankruptcy Offers Protection

Unlike a debt consolidation plan, bankruptcy can actually eliminate certain types of debt, such as medical bills and credit cards. This type of bankruptcy is a Chapter 7. A Chapter 13 bankruptcy case is one where you rearrange your debts through a controlled repayment plan. Both Chapter 7 and Chapter 13 cases are the most common types that an individual or small business can file for.

When you file for bankruptcy, you will have protection from creditors. This is called the automatic stay. The automatic stay prohibits most creditors and collectors from any type of collection activity against you. It also has the power to stop distressing phone calls, lawsuits, repossessions, and foreclosures.

Bankruptcy and debt consolidation plans are your chance for the weight of your debts to be lifted from your shoulders. If you feel ready for a drastic change in your financial situation, we at Liviakis Law Firm can help you find out which type of debt relief you qualify for and help you get started.