When bills start piling up and creditors keep calling, you might finally decide to do something about your debt. Fortunately, you have options, including the common options of bankruptcy and debt consolidation. While debt consolidation has some benefits, choosing bankruptcy is usually the best route to take. Here are several things to know about these options.
The Pros and Cons of Debt Consolidation
Through debt consolidation, you can work with a company who will help you create a plan to repay your debts. This plan typically involves you paying one monthly payment to the debt consolidation firm each month, and they take this money and distribute it to your creditors.
The benefit of this is that it will not hurt your credit in the same way bankruptcy would. It might also cost less than bankruptcy, but this depends on your debts and the company you choose. Another benefit is that you will get to keep your credit cards.
While these are great benefits, there are a lot of limitations when it comes to debt consolidation plans. Here are some of the top drawbacks.
The Plan Will Not Include All Your Debts
Debt consolidation works only for credit card debts. Excluded debts include medical bills and cash advances. Additionally, you cannot include any secured loans, such as your mortgage or your car loans.
Your Creditors Have No Legal Obligations to Agree to the Plan
Secondly, although the debt consolidation company will notify your creditors of your payment plan, they do not have to agree to the plan.
You Will Still Get Collection Calls
Because creditors do not have to agree to the plan, they may continue calling you for money or sending demand letters.
Many Companies Have Hidden Fees
Many debt consolidation companies do not offer clear explanations of their fees. In other words, you might think the plan only costs a certain amount, but they might charge you a lot more than this.
Debt consolidation might work well for some people, but it does not work well for most people, especially for those who have past-due balances on secured loans.
The Pros and Cons of Bankruptcy
Bankruptcy offers legal help to people who desperately need help with their debts, and you can choose from two main options: Chapter 7 and Chapter 13. Bankruptcy also has pros and cons, and the main negative effect of bankruptcy is the effects it has on credit. Filing for Chapter 7 will remain on your credit for 10 years, while filing for Chapter 13 will remain for 7 years.
Bankruptcy offers a lot of benefits, though. Here are the top ones:
It Allows You to Eliminate Debts If You Qualify for Chapter 7
Chapter 7 forgives most unsecured debts, including credit card bills and medical bills.
It Allows You to Consolidate All the Debts You Have
Through Chapter 13 bankruptcy, you can get on a repayment plan that includes every debt you owe. Nothing is excluded from a Chapter 13 plan.
It Stops All Creditor Contact
In both branches of bankruptcy, the court issues an automatic stay which stops creditors from contacting you. It also requires your creditors to go along with your bankruptcy plan.
It Stops Foreclosures and Repossessions
Debt consolidation will not offer any relief if you are about to lose your house or car, but Chapter 13 bankruptcy will.
These are some of the top benefits offered through bankruptcy. Before you decide whether to choose bankruptcy or debt consolidation, make sure you talk to a lawyer.
Talking to an expert about your financial situation is the best way to determine what route to take. If you would like to learn more about these options, contact McMaster Law Firm, LLC today. We would love to sit down and talk to you about your situation and the options you have for debt relief.