Should you avoid bankruptcy? Well, this is a bankruptcy blog, so we may be partial. But if you look at the facts when comparing debt consolidation to bankruptcy, it’s pretty easy to side with bankruptcy.
What are the downsides of debt consolidation?
First and foremost, debt consolidation companies mainly try to help you with unsecured debts such as credit and medical debts. If you are worried about keeping up on your mortgage, debt consolidation can do nothing. If you fear repossession of your car, that is another secured debt you won’t get much help with. Debt consolidation companies offer you no legal protection. And often you end up paying more money on these debts over time – even with a lower monthly bill – than you would be negotiating. How? With interest rates.
Why file Texas bankruptcy?
Chapter 7 bankruptcy is better at discharging unsecured debts. It allows you to completely discharge the majority of your debts, namely credit and medical. You pay no interest rates. You have legal protection from creditors.
Chapter 13 bankruptcy is better at paying on secured debts, monies owed such as your home and car. It allows you to protect your home, car, and other assets from being taken. If you make too much money to file Texas Chapter 7 bankruptcy, you almost always have the opportunity to file Chapter 13.
Advantages of Bankruptcy over Debt Consolidation
As noted, one myth of debt consolidation is that it can help with all debts. If you have secured debts, you might as well negotiate on your own; debt consolidation cannot help. If you owe money you can’t pay on your mortgage, you would do better to either discharge the debt with Chapter 7 or protect the home with Chapter 13.
Also, debt consolidation does not stop creditor harassment, and bankruptcy does. If you file bankruptcy, either Chapter 7 or Chapter 13, a Texas judge will put an “automatic stay” on all your debts, stopping any collections against you. Debt consolidation companies only negotiate with creditors; they offers no legal options for stopping creditor phone calls and letters.
Finally, bankruptcy may be better on your credit than debt consolidation. Even though you are paying the debts, many companies fail to pay on time. While this may not sound like a big deal, a bad company can cost you money on late fees and hurt your credit rating. True, a bankruptcy will stay on your credit report for 7-10 years, but with the money or assets you save, you can rebuild your credit over time.
Do you have options beyond bankruptcy?
Yes, you do have options other than filing bankruptcy. Rather than debt consolidation, you may try negotiating payments on your own. Creditors want their money; if you say you cannot pay the full amount and want to spread the payment over, you may be able to do so. You might do other things too, such as using a short sale to pay back what you owe on your home. Bankruptcy is not always your best option, but it should be considered.
Who can help?
Still unsure about debt consolidation and bankruptcy? Start asking some questions, and ask them to an experienced Texas bankruptcy lawyer. A good lawyer can help you save tens of thousands of dollars, protect property, and rebuild your credit over time.
