Debt Consolidation Versus Bankruptcy

For many consumers who are struggling with debt, debt consolidation might sound enticing. However, will it truly help you achieve your goal of getting out of debt?

It is imperative to thoroughly research the consolidation agency before deciding to work with them, as there are many companies that fail to keep their promises. Researching online reviews and learning more information about how the program works may help. There are other important considerations to take into account, however.

Debt Consolidation Plans

Consumers may potentially be making consolidation payments for 4 to 5 years and then discover that a lot of their debt was not included in the repayment plan. Debt consolidation plans typically do not include certain types of debt like medical bills, lawsuit judgments, or collection accounts. There are also some credit card companies that do not participate in debt consolidation programs and they are not required by law to do so. Those credit cards and other debts that are not included in the program would then remain in default and creditors may report the delinquent status to the consumer’s credit report, negatively affecting their credit. These creditors may also resort to filing lawsuits and attempting to collect on those debts by garnishing wages, levying bank accounts, and placing judgment liens against other non-exempt property. As for the credit card debt that is included, a payment plan of around 4 to 5 years is generally devised. Some agencies hold the funds in an account until a lump sum payoff is negotiated with the creditor. In the meantime, the account is in default/delinquent status. Settling accounts for less than what is owed and defaulting on payments have a negative impact on one’s credit report. There are also tax consequences of settling a debt for less than is owed, which may result in having to pay taxes on the amount of debt that was “forgiven” since this is considered “income.”

The Bankruptcy Option

Bankruptcy may be a better option in many cases. Consumers may be eligible to either wipe out all of their debt, without the tax consequences of settling with the creditors. One may also include a wider range of debts in bankruptcy (medical bills, collection accounts, judgments, and all credit card debt), unless acquired fraudulently, of course. Bankruptcy can also give eligible consumers the fresh start they need to get their finances and life in order. It can take as little as 3 months for a Chapter 7 with no repayment to creditors (for those who qualify) or it can take 3 to 5 years in a Chapter 13 repayment plan. Depending on the circumstances of each case, the bankruptcy repayment plan may include payments for all or only a fragment of your debt. Factors that are taken into consideration in determining how much of the debt is repaid include disposable income and the value of assets and their respective exemptions (protections).

If you are struggling with debt and it feels almost impossible to break free, you should contact our Fort Lauderdale bankruptcy attorneys to explore all of your options. Most consultations are free and there is no obligation; therefore, you have nothing to lose (except maybe the stress associated with insurmountable debt!).

Contact Loan Lawyers For Debt Relief

Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 1,800 homes with skilled foreclosure defense, eliminated $100,000,000 in mortgage principal and consumer debt, and have collected millions of dollars on behalf of our clients due to bank, loan servicer, and debt collector violations, negligence, and fraud. Contact us for a free consultation to see how we may be able to help you. Contact us online or call us at 1-888-Fight13 (344-4813).