Many times individuals will ask me why they should file a Chapter 13 bankruptcy instead of using one of the companies who promises to work out a debt consolidation plan. There are some very large differences between a Chapter 13 and a debt consolidation plan.
Normally debt consolidation companies will only deal with credit card debt. They will not work with medical debts, pay day loans or secured creditors like a mortgage or car loan. In bankruptcy, all of your debts will be addressed.
A debt consolidation company tries to set you up on a payment plan that will pay off your credit card debt regardless of how long it takes to pay it. While they will normally try to get a lower interest rate or a smaller balance, the payment is based on paying back the creditors in full. In bankruptcy, you have a set amount of time to make payments to your creditors. The payment will be based on what you can reasonably afford to pay, not what it takes to pay off the debts.
In debt consolidation program is voluntary for the creditors, they can choose whether to participate or to continue to participate. I had one client who had made payments for three years but the company he was sending the payments to made a mistake and did not pay one of the creditors one month. They opted out of the program and proceeded to garnish his wages. Bankruptcy, on the other hand, is mandatory. All your creditors will be included in the bankruptcy whether they like it or not.
While a debt consolidation program can work for some people, I see far too many people who have tried to do it and failed. They come to me to do a bankruptcy and all the money they paid to the debt consolidation company is pretty much wasted.
Don’t let this happen to you. Before you commit to a debt consolidation program, find out what a bankruptcy can do for you. Contact us today or call us at (757) 320-2010. We will schedule you a free, no obligation consultation to see what a Chapter 13 bankruptcy could do for you.
For more information on when to consider a Chapter 13 bankruptcy, check out my article on 5 Signs that a Chapter 13 Bankruptcy may help you.