Chapter 13 Bankruptcy Vs. Debt Consolidation — The Pros and Cons


When struggling with debt, many people would benefit from turning multiple forms of debt into one single and more manageable payment. If you want to get control of your debt issues with such a plan, you have two basic ways to accomplish it: debt consolidation and Chapter 13 bankruptcy. Which is right for you? Here are a few pros and cons of both options. 

Pros and Cons of Chapter 13

While most people think of bankruptcy in terms of liquidation of assets and one-time discharge of debt, there is more than one route through bankruptcy. Under Chapter 13, you agree to a payment plan for unsecured debt over a period of years. This payment consolidates most or all of your eligible unsecured debt. Eligible debt that still remains will be discharged by the court when the plan ends. 

Because it's based on your income and expenses, Chapter 13 repayment can be the most affordable way to pay off debts. It also comes with the same protection from creditors offered by all bankruptcy cases — so you won't have to deal with harassments, garnishment, or other collections efforts. 

Chapter 13 bankruptcy, though, is a long legal process, and payment plans will take several years during which you remain subject to the court rules. Most debtors also need legal assistance with this more complex version of bankruptcy. 

The Pros and Cons of Consolidation

You can, of course, consolidate your debts into one payment by securing a larger loan and using it to pay off smaller debts. Most consolidation loans also come with a lower interest rate, meaning more of your payment goes to principal.

If you don't need the protection from collections afforded through Chapter 13 bankruptcy, consolidating on your own could be easier and less expensive. Unlike bankruptcy, you don't have to qualify by court standards or settle for a mandated payment. This approach may also be best for a debtor who has ethical or moral issues with not paying back all their debts. 

Without legal bankruptcy, though, you won't see the automatic discharge of your debt in a few years. While you may be able to negotiate with creditors, there is no guarantee that any debt will be forgiven — and it may be taxable income if that does happen. Further, if your financial situation changes and you can't make payments, there will be no automatic protection from collections efforts. 

Where to Learn More

Both debt consolidation and Chapter 13 bankruptcy have their benefits and their drawbacks. To find the best path for your debt, start by meeting with a debt consolidation lawyer who specializes in both methods in your state today. 

About Me

Goodbye Bad Debt. Hello Good Life.

Debt is not always your fault. Sometimes something unexpected happens, like job loss or a bad illness, and the bills just pile up faster than you're able to handle. Eventually things settle down and you think your life is back on track again, but you still find yourself unable to pay those sky-high bills. Declaring bankruptcy is usually an option. It can help you move on, not only financially, but mentally. There are several types of bankruptcy that are allowed under U.S. law, and you'll need to meet with a bankruptcy attorney to find out which one you are most likely to qualify for. We share more information about this and related bankruptcy attorney topics on this website, so dig right in and start reading.

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