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Bankruptcy is a Federal Law administered by the Federal courts. it is HIGHLY regulated and supervised by both the US Trustee and the Federal Court System. Debt consolidation is NOT regulated. Under chapter 7, ALL of your unsecured debt (credit cards, pay day loans, notes, lines of credit, etc.) will be DISCHARGED and you will never owe the debt again. If you enter into a debt consolidation plan, what you are really doing is borrowing more money in order to pay debt that is dischargeable, you are not getting rid of any of the debt. Here are just a few of the things bankruptcy can do that credit counseling cannot: • Bankruptcy can get rid of the actual debt and, when you get rid of debt, you also get rid of the obligation to pay interest on that debt. Debt consolidation you are not getting rid of any of the debt, and in fact, you are borrowing more and going deeper into debt. • Bankruptcy lets you put your unsecured creditors under your control. Debt consolidation only rearranges your debt, and adding more debt to do so. Your creditors are even more in control under debt consolidation. Also, if you have to use the equity in your house in order to consolidate your debt, you have just converted unsecured debt (such are credit cards) which under bankruptcy would be fully dischargeable, into secured debt which is not. This is exactly what your unsecured creditors would like for you to do. • Bankruptcy can lower your monthly expenses, in the vast majority of cases, significantly more than debt consolidation. Think about it. Bankruptcy can get rid of debt completely, and getting rid of debt stops the payment permanently and completely. You never have to pay it ever again. Debt consolidation you still have to pay the debt, but now you have more debt due to closing costs, and all the debt is now secured debt. It may lower your monthly payments to some degree, however, you now have to make those payments for 20 to 30 years or more. Under bankruptcy, the debt is discharged within a matter of months and you never have to make any payments under chapter 7. • Bankruptcy helps you start re-building your credit faster. It goes without saying that the first step in re-building your credit is to get rid of debt. Why? Because getting rid of debt puts you in a position to afford new credit, and because putting you in a position to afford new credit attracts new lenders willing to give you more credit. Debt consolidation doesn't get rid of debt, it adds even more debt. Thus, it takes you longer to get out of debt, and the longer it takes you to get out of debt, the longer it will take you to look attractive to new lenders willing to give you credit. Debt consolidations makes you less attractive to lenders, and therefore may hurt your ability to get credit. • Bankruptcy is an established system of law, procedures and regulations, created to protect YOU and is highly regulated. The Bankruptcy system is run by Judges and lawyers licensed to practice and closely regulated by State Bar licensing boards. Debt consolidation plans are not. The industry is completely unregulated, with no one to protect your interests at all. • The Bankruptcy version of "bill consolidation" (Chapter 13) is designed to make sure that you can afford to make the payment. It also puts the full authority of the Bankruptcy Court to work for you to make sure you are not taken advantage of. When you file for chapter 13, your monthly payments are based on your income and expenses, not the amount of debt. Most if not all of your unsecured debt is discharged forever. Under a debt consolidation plan, you are paying all of your unsecured debt, all of the secured debt, and adding more debt to do it in the first place. The harm of agreeing to pay a debt consolidation plan you can't afford is that if you can't afford to pay the plan payments you will be under a risk of foreclosure of your home, or losing the security for your debt consolidation loan. In other words, you now owe EVEN MORE THAN WHAT YOU STARTED WITH IN THE FIRST PLACE AND WORSE OF ALL THE ENTIRE DEBT IS NOW SECURED AND NON-DISCHARGEABLE IN BANKRUPTCY. You lose, but the credit card companies and debt consolidation companies win because every month they keep you paying and out of the hands of a bankruptcy attorney is a month they make money, and they may ultimately wind up with your home and all the hand earned equity that took a lifetime to amass. The bottom line: Instead of telling people how bankruptcy really works, and all the good things that can come from filing bankruptcy, the debt consolidation outfits are forced to feed off the "stigma" that most people attach to bankruptcy because they just never ask to find out the truth about bankruptcy in the first place. Want to read more about bankruptcy and what it can do for you and your family? Go to our Bankruptcy FAQs. Want to ask your questions over the phone? Use our free | ||
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