Chapter 13 vs. Debt Consolidation: What’s the Difference?
Technically speaking, Chapter 13 is a form of debt consolidation that reorganizes all your finances by allowing you to consolidate your debt into a single manageable monthly payment. However, it’s rather different from credit counseling repayment plans and consolidation loans offered by private finance companies and banks. This makes bankruptcy far superior to standard debt consolidation programs according to La Mesa’s Chapter 13 bankruptcy attorneys.
What are the differences between debt consolidation and Chapter 13?
In order to learn more about how Chapter 13 is the better option for individuals facing financial difficulties, it’s best to directly compare it to traditional types of debt consolidation. Remember – Chapter 13 has the Federal Bankruptcy Code supporting it, which provides numerous advantages over debt consolidation programs. Let’s see what these advantages are:
Automatic stay is one of the biggest advantages of Chapter 13. It grants you immediate protection against your creditor garnishments and harassment as soon as you file bankruptcy. Automatic stay also stops lawsuits, license suspensions, repossessions and, most importantly, foreclosures.
Chapter 13 works with many types of debt
Different types of debt consolidation programs target specific and limited debts and usually don’t include the essential types of debt, such as child support arrears, tax debt, car payments, and mortgages. Chapter 13 bankruptcy, on the other hand, assembles all these debts into a single affordable monthly installment.
Chapter 13 reduces the amount of debt
Depending on your individual qualifications, Chapter 13 bankruptcies allow you to pay back just 10% of all your unsecured debt, while wiping out the remaining 90% of your debt. This reduction in the principal you owe will pay off your debt quickly and efficiently, whereas debt consolidation plans include 100% repayment of the principal.
Debt consolidation options don’t have the legal power to instruct what the creditors will get paid. These programs simply ask creditors to make their interest rates lower. Chapter 13 is Federal law, which means creditors get told how to handle your bankruptcy instead of making the rules themselves.
Exact time frame
With a Chapter 13 bankruptcy, you know how long the entire process will take – between three and five years. On the other hand, there are no such guarantees with loan consolidation programs, meaning they can end up dragging for years and years.
No late fees or interest charges
As soon as you file Chapter 13, there are no more late fees. The money that goes toward your unsecured debt goes toward paying off your principal and reducing your debt, not toward repaying interest charges and late fees. This is not the case with debt consolidation. They do not reduce your debt, simply lower your interest fees.
There are no requirements or pledging collateral with a Chapter 13 bankruptcy. Many debt consolidation plans, such as home equity loans, will place your property at risk if your monthly payments are more than you can afford to pay.
Who are La Mesa’s leading Chapter 13 bankruptcy attorneys?
Chapter 13 is an excellent option for regaining your financial independence. It’s superior to debt consolidation, especially if you know the important details. For example, you should know the answer to the most frequently asked questions about Chapter 13, be aware of the most common reasons individuals file Chapter 13, and finally find out whether you can purchase a home during this bankruptcy. From there, it’s time to enlist the help of expert lawyers.
And there are no greater experts in Chapter 13 bankruptcy in La Mesa & the entire region than Chang & Diamond. They have ample experience providing counsel and representation for different types of bankruptcy, and they have the knowledge and the skills necessary to ensure a positive outcome for your case. Come in for a free consultation, start your process of bankruptcy, and gain peace of mind to enjoy Mt. Helix Park again. Give us a call today!