Have you fallen on difficult financial times and are struggling to make
ends meet to matter how hard you work? If so, you may have heard that
bankruptcy and debt consolidation can help you overcome your debt and get back on
the road towards financial freedom. But what are the differences between
these popular strategies, and which one is better for your individual
situation? To answer this question, we must first examine each individually
and determine your goals.
What is Debt Consolidation?
In simple terms, debt consolidation is a debt refinancing process that
involves taking out one loan to pay off several others. When you consolidate
your debts, you reorganize numerous payments into one, single payment
through a secured or unsecured loan. While debt consolidation can help
to simplify your debt management, lower your interest rates, and protect
your credit in the short run, there are also several disadvantages to consider.
Debt consolidation oftentimes allows you to lower your interest rates and
monthly payments by extending the repayment period. Generally speaking,
the longer you stay in debt, the more likely it is that you will end up
paying more in the long run. Any money you save through debt consolidation
may also be considered income by the IRS, subjecting you to increased
tax liability. Worst of all, if you should ever default on a debt consolidation
loan, you could end up losing your property.
What About Bankruptcy?
Conversely, bankruptcy allows you to restructure or eliminate your debts
while under the protection of the federal bankruptcy court. Most individual
consumer bankruptcies fall into two categories:
Chapter 7 and
Chapter 13. Chapter 7 bankruptcy involves selling off your non-exempt liquid assets
to satisfy creditors, while Chapter 13 bankruptcy involves establishing
a 3-5 year court-approved repayment plan.
Individuals who file for bankruptcy are provided protection against creditor
communications, harassment, and collection efforts through a court injunction
known as an “automatic stay.” Those who pursue debt consolidation
are not afforded this privilege. Furthermore, bankruptcy serves as a way
to achieve a fresh financial start, with any dischargeable debts being
permanently forgiven. While bankruptcy will lower a person’s credit
score in the short run, filing for bankruptcy is often the first step
towards long-term credit restoration through responsible credit card use
and timely payments.
Bankruptcy can eliminate the following types of debt:
- Credit card debt
- Medical bills
- Personal loans
- Utility bills
While bankruptcy is usually a better option, it is always important you
consult with a knowledgeable attorney before making a decision. At the
Law Offices of David Kovari, PA, our Boca Raton bankruptcy lawyer has
nearly 20 years of legal experience and can help you get on track towards
a debt-free future.
To find out more about your debt relief options, call (800) 843-1165 or
schedule a complimentary consultation online today.