Bankruptcy vs Debt Consolidation

Payment Plan Available | Se Habla Español

You may have seen a television commercial by a debt consolidation agency, promising to take care of your debt and make things easier for you. While there are a few advantages to debt consolidation, it is important that you consider weighing the pros and cons of debt consolidation versus bankruptcy. Many people are wary about the stigma bankruptcy is thought to carry with it. However, there are many advantages to bankruptcy, including the ability to completely discharge a debt.

At Chang & Diamond, APC, our San Diego bankruptcy attorneys can explain to you the benefits of bankruptcy as opposed to debt consolidation, so that you can make an informed decision knowing all your options.

Contact the San Diego Debt Consolidation Attorneys at Chang & Diamond, APC, today for a free initial consultation. We can discuss your individual case and how bankruptcy can help lead you to a fresh financial start.

The Truth About Debt Consolidation

If you were to enter into a debt consolidation program, you are essentially making a contract with whatever agency you consulted with. The debt consolidation agency will approach your creditors to try to get a lower interest rate and monthly payment. The advantage of this is that if the agency succeeds, you make just one payment to the agency and can put an end to creditor harassment.

However, you will likely pay an administrative fee every month and there are no guarantees the agency will succeed. The agency can deduct payments straight from your bank account. Debt consolidation only covers unsecured debt, like credit cards. You would not be able to consolidate secured debt like your mortgage or car payments. Furthermore, debt consolidation can damage your credit and does not ever liquidate or discharge debt. Instead, it simply transfers debt.

Comparing Bankruptcy and Debt Consolidation

When faced with overwhelming debt, choosing between bankruptcy and debt consolidation requires a thorough understanding of each option’s repercussions. Bankruptcy, often perceived as a last resort, does have the distinct advantage of potentially discharging most debts entirely, providing a clean slate. However, it can significantly impact your credit score, making it challenging to obtain future loans or credit lines. Additionally, not all debts can be discharged; student loans, certain taxes, and alimony obligations remain unaffected.

On the other hand, debt consolidation involves combining multiple debts into a single, often lower-interest payment plan, which can simplify personal finance management and reduce the total interest paid over time. While less damaging to your credit score in the short term compared to bankruptcy, it requires a consistent income to keep up with the new payment terms. Failure to do so could lead to further financial distress.

Each path carries significant financial implications that can affect your life for years. Hence, it’s crucial to consider personal circumstances and possibly seek advice from financial advisors to make an informed decision that aligns with long-term financial goals.

A Fresh Start: Chapter 7 and Chapter 13 Bankruptcy

There are many myths about bankruptcy, including that it will ruin your credit forever. This is not true. While bankruptcy is part of the public record, there are several other advantages. Chapter 7 bankruptcy allows you to discharge certain debts completely. Chapter 13 bankruptcy provides the ability to reorganize your debt so that you can make a payment plan that works for you.

Furthermore, bankruptcy stops any further legal proceedings by creditors. You most likely will be able to keep your home and car. Filing for bankruptcy can also stop creditor harassment and phone calls. Bankruptcy gives you the chance for a fresh start since it is pretty much the only way to get any debt cleared.

Contact Our San Diego Debt Consolidation Lawyers

For advice on whether bankruptcy is right for you, call on the personal bankruptcy attorneys of Chang & Diamond, APC. Contact us today to schedule your free initial consultation with an experienced San Diego debt consolidation lawyer.

Frequently Asked Questions About Bankruptcy and Debt Consolidation

What debts are dischargeable under bankruptcy, and what are not?

Bankruptcy can often erase most of your unsecured debts like credit card debt and medical bills. However, it generally doesn’t cover student loans, most taxes, child support, and alimony. Understanding which debts can be discharged is crucial before deciding to file for bankruptcy.

Can debt consolidation impact my credit score?

While debt consolidation typically has a less severe impact on your credit score compared to bankruptcy, it does require taking out a new loan to cover old debts, which can initially affect your credit. Consistently meeting the new payment terms can gradually improve your credit score over time.

How long do the effects of bankruptcy remain on my credit report?

The consequences of filing for bankruptcy can linger on your credit report for 7 to 10 years, depending on whether you file Chapter 13 or Chapter 7 bankruptcy. This can affect your ability to secure loans and might require higher interest rates in the future.

Is debt consolidation a better option for avoiding creditor harassment?

Debt consolidation can reduce creditor harassment by streamlining multiple debt payments into one. It may provide a more manageable way to repay debts without the stress of multiple creditors reaching out for payment.

Book a Free Consultation With Ease

Find out why we’re some of the best bankruptcy attorneys in San Diego