Bankruptcy Vs. Debt Consolidation: A Clear Legal Decision

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As soon as people realize they are in financial trouble, they start finding ways to solve the problem. Though there are all kinds of options, debt consolidation is a popular choice over bankruptcy because many believe that filing for bankruptcy will hurt one’s credit score. Though this may be true, there are other matters to consider about debt settlement.

What is debt consolidation?

When you work with a debt consolidation or debt settlement company, they take charge of all your debts. You give them all your bills and you free yourself from worrying about attending harassing collectors and creditors. However, that doesn’t free you from paying your obligation to them.

Handing over the bills and payables to the debt settlement company means that you also hand over your obligation to pay for those bills as well as give them fee for their charges. Perhaps the main benefit in this process is that you don’t have to worry about the creditors and collectors and you pay only to one company, that is, the debt consolidation company rather than multiple agencies at different payment schedules. It can be likened to paying a company to help you attend to your bills and to your creditors. But still, you have to pay them through the debt company.

What does the debt consolidation company do?

For a fee, the company takes your payments and manages it to pay your bills. They can help you by going to the creditors and offering them less than 100% of the debt you owe to pay off that debt. While others may be amenable to this, there may be creditors who don’t agree to it and may even ask for judgement and wage garnishments.

To clarify further, the debt settlement company tries to minimize or write off your debts by going from one creditor to another, once it settles one, it saves your payments again and try to settle another creditor. These companies do this for a certain fee. You won’t be able to settle your debts if you have too much and it might take 5 years (on average) to complete them, depending on the amount of your debts and your payments.

The arrangement may sound good but then the point is, you stop paying the debts once you start working with the consolidation company. When this happens, your credit score is affected because the creditors start sending your debts to the collection agencies. During the time that you work with the debt company, your credit rating starts deteriorating because there is a halt on the payment of the loans and some creditors may pursue judgments.

Another problem with debt consolidation is that as the consolidation company tries to settle your debts and at times tries its best that some of your debts be forgiven. When this happens you can owe and pay taxes in these instances.

Actually, debt consolidation doesn’t seem to be a very efficient way of paying your debts but let’s not forget to learn more about bankruptcy and consider it as an option to pay our debts.

We discussed debt consolidation or debt settlement and how it can help or affect the way debts are handled once a debtor starts working with a debt consolidation company. Now we are going to explain what bankruptcy is and how it can be a better option over debt consolidation.

What is bankruptcy and its benefits?

A person who is indebted to various creditors and is having difficulty paying them can file for bankruptcy. Oftentimes, the immediate reason is to free oneself from the stress and anxiety of having to deal with creditors and collection agencies. The other reason would be to manage the debts and get them paid in a more systematic way without the need of a debt consolidation company.

The process of bankruptcy may be tedious, time-consuming, and expensive compared with the debt consolidation process but it is more reliable and you will be working on your debts according to the law so you are protected from scams which, unfortunately, is typical of some debt consolidation companies.

Working with bankruptcy lawyers also streamlines this complicated process and makes it easier to understand as well as make things as easy as possible on your behalf. Lawyers will never jeopardize their licenses as they are bound to render ethical services to the public.

How is bankruptcy better than debt consolidation?

1. The debtor is protected from judgments and wage garnishments.
2. It is a faster method to organize your finances and debt repayments.
3. You don’t pay taxes on the bankruptcy discharge.
4. When you file for a bankruptcy, there is no settlement for most creditors but they can get whatever assets can’t be protected and nothing more. Some debts might even be paid less and others may be written-off.
5. The bankruptcy attorney knows the process and will explain how it works. Everything is clear and legal. He will tell you which debts will survive and all the costs that go with the process of bankruptcy. There is more clarity and certainty in this option because the whole process is explained, from start to end and when the repayment will be completed and finished.
6. Get assured of an ethical way to process your debts with bankruptcy. There have been various scams going on with debt consolidation companies. Make sure you are aware of these if you still want to consider it as a way to finance your debts.

Bankruptcy lawyers always follow strong ethical rules otherwise they risk losing their license. Debt settlement companies are businesses with less regulation compared with lawyers and there are records of people being cheated out of their money. Not to say that all debt companies are unethical, only that the likelihood of being treated fairly is much higher when working with a bankruptcy lawyer.

Filing bankruptcy with the right attorney can help you improve your financial situation. How do you search a good attorney? You can search them online and learn more about their credentials, qualifications, and specialties. You can also ask someone to refer a good bankruptcy attorney to assist you in resolving your financial problems. Take your time in finding a lawyer you feel comfortable with. How you manage your finances is always a major decision.