As an experienced bankruptcy and debt relief attorney, I am often asked whether I prefer debt consolidation or bankruptcy. To answer this question, it is important to understand the difference between the two. In this post, I’ll discuss the pros and cons of both debt consolidation and bankruptcy in Littleton, Aurora, and Greenwood Village.
Debt consolidation is a process where you reorganize all your debt payments into one payment. You have two choices to consolidate debt – either through a secured loan or an unsecured loan. Here are the pros and cons of debt consolidation in Lone Tree, Highlands Ranch, and Parker:
Debt Consolidation Pros:
Protect Your Reputation and Credit Score: If you choose debt consolidation, you will be able to protect people’s perception of you (your reputation) and your credit. Debt consolidation records are not public, whereas bankruptcy records are viewable through an online service and at any federal bankruptcy courthouse. Debt consolidation can show up on your credit report, it doesn’t usually lower your credit score.
Simplify Payments: With debt consolidation, you’ll be able to make one large payment instead of many different payments at different times. You’ll have the same interest rate for each debt, and you’ll make the payment to one creditor. You may also be able to get a lower interest and monthly payment with debt consolidation.
Keep Your Credit Cards: Unless your debt consolidation agreement prohibits it, you are allowed to keep your credit cards. If people are struggling with debt, however, I don’t encourage people to keep their credit cards. But, in an emergency, it can be nice to have access to one credit card.
Chapter 7 Bankruptcy and Chapter 13 Bankruptcy
Bankruptcy is the process where you can eliminate debt and / or restructure debt while being protected by the federal bankruptcy court. The most common types of bankruptcy are Chapter 7 and Chapter 13. To learn more about these types of bankruptcy, read each related page. Here are a few of the pros of filing for bankruptcy:
Protection from Creditor Harassment: When you file for bankruptcy, an automatic stay goes into effect. This stops most collectors and creditors from trying to collect your debt. The automatic stay makes it illegal for a creditor or collector to contact you – so the harassing phone calls, wage garnishment, lawsuits, repossessions, and lawsuits will stop.
Discharge / Liquidation / Reduction of Debt: When you file for a Chapter 7 bankruptcy, most of your unsecured debt (medical bills, credit cards, etc.) are eliminated completely. If you don’t want to keep a debt (such as a house or car payment), you are able to surrender property and related debts and get a fresh start. When you file for Chapter 13 bankruptcy, you will repay only a portion of your unsecured debt through a repayment plan overseen by the court. In some plans, you are even able to make reduced payments on your car in Centennial, Englewood, and Denver.
You Can Keep Your Property: When you file for bankruptcy, the automatic stay will go into effect and halt your foreclosure. In most cases in bankruptcy, people are able to keep their home and car (although, I often tell people during their bankruptcy filing that it may be the perfect time to be free of the mortgage or car payment and get a fresh start).
We hope this blog has shed some light on the benefits of both debt consolidation and bankruptcy. Next week we’ll discuss the cons of both options. If you are struggling with debt and you have any questions regarding which option is better for you, don’t hesitate to contact me for a free office consultation to discuss your financial future.
[pullquote align=”center” textalign=”center” width=”100%”]Read part two of this series about the cons of both debt consolidation and bankruptcy.[/pullquote]
If you are considering debt consolidation or bankruptcy, don’t hesitate to contact experienced bankruptcy lawyer Barry Arrington. He has helped countless families in Littleton, Aurora, and Centennial gain financial freedom through Chapter 7 and Chapter 13 bankruptcy. Contact him for a free consultation at 303-205-7870, or submit the “Get Bankruptcy Help Now” form.