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Bankruptcy vs. Debt Consolidation – What You Should Choose

If you are already considering filing for bankruptcy, then you will have to go through credit counseling. The aim of credit counseling is that you are getting a chance to find out if filing bankruptcy is the only answer to your financial issues. While addressing your immediate financial concerns you can file for chapter 7 and chapter 13 bankruptcy, you can also go for debt consolidation. Which is the better option for you? Talk to our Pittsburgh bankruptcy lawyer about it.

How Does Debt Consolidation Work?

Before you can actually compare, you need to know about debt consolidation. Debt consolidation is the process of merging multiple debts into a single one. The aim is to offer the debtor some ease of managing debts as the numerous number of debts can become difficult to manage.

On one hand, this process can simplify the repayment process while on the other, it takes down the interest rates effectively. Essentially, you will be taking a loan to pay off all the loans that have been taken before. Debt consolidation is not debt settlement where you can pay the creditor a smaller amount than what you owe to them. The credit counseling agency or debt settlement agency can do the negotiation for you in this matter.

The aim of both of these processes is different. While debt settlement is focused on reducing your debts, debt consolidation is focused on reducing your creditors.

And when compared, both of these processes are completely different from the bankruptcy process. For Chapter 7 bankruptcy, you will get the court-appointed trustee who will liquidate your non-exempt property and pay off your debts. For Chapter 13, you will get a court-approved repayment plan that you will have to follow for paying off your debts for the next 3-5 years.

Pros and Cons of Filing Bankruptcy and Debt Consolidation

There are several pros and cons of filing bankruptcy and debt consolidation.

Automatic Stay

The biggest advantage of filing for bankruptcy is the automatic stay that the debtor gets right after filing for bankruptcy. This is a protection that stops all the pursuing of the creditors or all other court proceedings regarding the debts. Chapter 7 bankruptcy filing allows the debtor to get a stay for 90 days. And for chapter 13 bankruptcy, the stay can be for five years. This can buy the debtor enough time to stabilize the finances and get back to the solid footings for paying the debts. Debt consolidation has no such protection.

A Fresh Start

With bankruptcy, the debtor gets a fresh start. With the Chapter 7 bankruptcy, you get a chance to wipe off your unsecured debts. With Chapter 13, you can pay the debts by 5 years before the discharge for the case. After that, you get a fresh start financially. In fact, your already low credit score might get a boost as you will be able to reestablish your credit after bankruptcy.

Eliminating Debts

With Chapter 7 bankruptcy, you get a chance to eliminate a part of your debts. Your unsecured debts like credit card bills, personal loans or medical bills can be wiped off from your record. Often accidents and unwanted circumstances can lead to a situation where you get into these debts. Bankruptcy will help you erase that entirely.

Keeping Your Home or Car

While you are filing for bankruptcy, you can effectively delay the foreclosure of your home or repossession of your car. Home mortgages or car loans cannot be eliminated with bankruptcy. But you get a chance of getting back on track financially and pay off the loans with your disposable income.

Apart from these, there is the question of attorney fees when you are hiring a Pittsburgh bankruptcy lawyer. For debt consolidation, you don’t need to hire a lawyer. However, taking a loan to pay off your existing debt will come with certain fees and interest rates. If you weigh your options, paying attorney fees might make sense to you considering the benefits of bankruptcy you will get.

For more information on bankruptcy, get in touch with us today. Come to Pittsburgh Bankruptcy Law Group for more information.

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