Dealing with debt is difficult and confusing. The most popular options to deal with it are bankruptcy or debt consolidation. Read the following for the facts, benefits, disadvantages and costs of both.
The Facts of Debt Consolidation
Getting started with debt consolidation means contacting a debt consolidation service and having them assist you with your debt. Debt consolidation services work as the middleman between the debt owner and the creditors, contacting the creditors and requesting reduced payments so that the debt owner can begin paying off money that is owed.
Importantly, creditors do not have to participate in this process. If a creditor does not participate, the debtor is responsible for 100% of the debt.
Filing for bankruptcy, on the other hand, is a legal process during which you block creditors from your finances as you attempt to re-establish yourself financially. A Chapter 7 filing requires that you liquidate all but a few assets, such as a home and work-related assets. A Chapter 13 filing requires that you begin reorganizing your assets and paying off debts within three to five years.
Creditors are required participate in bankruptcy. They cannot opt out.
Debt Consolidation Benefits and Disadvantages
Debt consolidation has the benefit of discretion.
Bankruptcy, on the other hand, has the advantage of a clean slate. The debt owner can begin working through debts, without having to worry about calls from collection agencies or about continuing to receive bills from creditors.
Debt consolidation disadvantages include the limitations to the work that debt consolidators can do. Debt consolidation services work with unsecured loans, such as credit cards. They cannot work with secured loans, such as mortgages or car payments. If the debt owner cannot make mortgage payments, the debt consolidation service cannot help.
Bankruptcy is public and stays on a credit report for 7-10 years.
Costs of Debt Consolidation
Debt owners must bear in mind that debt consolidation and bankruptcy are not free. Debt consolidation services are not nonprofit organizations, so they charge a small monthly fee, primarily for administrative costs, to work with the debt owner.
Filing for bankruptcy also costs money, and a filing requires an attorney, who must be paid. Here at Duncan & Brow, we offer affordable payment options.
