Is Bankruptcy Different From Debt Consolidation?

Bankruptcy and debt consolidation are two very good ways to manage overly burdensome debt. But the two are not the same, and knowing the differences will help make it easier for you to decide which one is right for you. Before you take a look at the differences, you will want to make a list of your financial goals, so you can match up those goals to your alternatives. Once you are able to see which goals are met by which type of plan, you will be able to make a choice about what to do to salvage your finances.

Some of the differences between bankruptcy and debt consolidation include:

•         Debt consolidation requires you to repay all of your debts, in full. Bankruptcy does not require you to repay everything you owe, and for the things that do get repaid, you may be able to pay a reduced balance.

•         Bankruptcy requires you to file a case with the Courts, and is subject to legal scrutiny. Consolidation of debt is not a legal proceeding, and there will be no Judge or Court involvement in your repayment plans.

•         Debt consolidation is still debt, because it is accomplished by taking out a consolidation loan to pay off all of your debts at one time and then repay only the consolidation loan. In contrast, there is no new debt incurred when you file for bankruptcy, but debt is still eliminated or reduced.

These differences tip the scales in favor of bankruptcy for a large majority of the population, but not everyone is comfortable with that choice. Filing for bankruptcy will cause your credit to take a hit, but if you are significantly behind on your debts the chances of getting a consolidation loan may be slim. And, if you are already behind on payments the chances your credit has already taken a hit are great. In our experience people are more successful with their future finances when they opt for bankruptcy over taking out a loan to pay off other debts. The educational requirements that go along with filing for bankruptcy are hugely beneficial, and can give you the tools and knowledge needed to avoid future financial pitfalls.

For more information about how to fix your finances, call us today or reach us online at www.law-ri.com. We have multiple locations to serve you and can schedule a time to meet at the office most convenient for you.