Bankruptcy and Debt Consolidation Compared

Debt Relief and Consolidation

Debt relief agencies claim that they can significantly reduce your debt.  These agencies typically negotiate with your creditors in an attempt to settle your debt for a percentage of what you owe.  (Usually through the use of a lump sum payment.)

Credit counseling agencies claim to significantly reduce your monthly credit card payments through debt counseling. They typically do this by negotiating a monthly payment plan with your creditors that reduces your interest and consolidates your unsecured debt.  These plans normally do not reduce the balances on your credit cards or other debts.

Neither debt consolidation nor credit counseling, however, are able to provide you with the legal protection that comes with a bankruptcy filing. With a consolidation or counseling approach your creditors can and may still:
  • Pursue available debt collection methods against you.
  • Sue you in court for the debts you owe.
  • Call you and making harassing demands for payment.
  • Report your delinquencies to all of the credit reporting agencies.
Other problems may also arise, such as your agency failing to pay your creditors with the money you paid to them. In addition, there are usually tax obligations that you will be responsible for with respect to any debt that is forgiven by your creditor.

Many people do not want to file for bankruptcy because they fear the negative stigma, but credit counseling and debt consolidation also carry a negative stigma on your credit report. 

Benefits of Opting for Bankruptcy

Filing for bankruptcy is a legal remedy to debt problems and brings with it the protection of the courts. Creditors may not communicate with you directly and must go through your lawyer. Under the protection of the automatic stay, foreclosures, repossessions, harassing phone calls and any legal actions against you must stop immediately upon your filing.

Eligible debt is either discharged in Chapter 7 or reorganized into a repayment plan in Chapter 13 under the supervision of the court so you can be sure that your dept problems will be resolved.

Contact Attorney Sherwood for a free consultation to discuss the differences between bankruptcy and debt consolidation, so that you can make an informed decision about your financial future.