When debt becomes too difficult to manage, you need relief. Bankruptcy offers people the opportunity to regain control of their finances and start anew. Sometimes people look to debt consolidation as an alternative to filing bankruptcy. Unfortunately, many people do not understand the differences between the two. Debt consolidation does not offer the same legal protections as bankruptcy and is not the right choice for everyone. If you are struggling with debt, an experienced Washington DC and Maryland bankruptcy attorney can evaluate your financial situation and explain all of your debt relief options.
Debt consolidation, or debt settlement, typically involves working with a credit counseling agency or law firm that specializes in negotiating with creditors. You will most likely make monthly payments directly to the debt settlement company, which will in turn pay your creditors, usually after negotiating for a lower interest rate and/or reduced balance, which may or may not prove successful. Sometimes the process involves taking out a large loan to pay off several smaller loans and/or credit cards, which only reduces your overall debt if you obtain a better interest rate. Generally, debt consolidation deals only with credit cards and other unsecured debt.
It is important to understand that debt consolidation does not stop creditors from continuing collection activities against you. Creditors can still file lawsuits, seek wage garnishments, repossess collateral and take other such actions. Bankruptcy, on the other hand, offers automatic stay protection, which bars most creditors from engaging in collection activities while your bankruptcy case is pending. For this reason alone, debt consolidation may not be the best choice for you. A qualified Maryland and Washington DC bankruptcy attorney can help you determine the best way to get out from under debt while also protecting your property.
Benefits of Bankruptcy
In addition to automatic stay protection, bankruptcy offers the chance for a fresh start. In Chapter 7, you can discharge almost all unsecured debt, with just a few exceptions. In Chapter 13, you can reorganize your debt into a repayment plan that typically lasts three to five years, at the end of which, you can discharge your remaining debt. Chapter 13 allows homeowners facing foreclosure to keep their homes and catch up past due mortgage payments through the repayment plan.
Bankruptcy may be a better option than debt consolidation if:
- You are at risk of losing your home to foreclosure
- You are at risk of having your car or other personal property repossessed
- You recently lost your job or other source of income
- You cannot afford to make debt payments
- You have mostly non-credit card debt
A knowledgeable Washington DC and Maryland bankruptcy lawyer can explain the potential benefits and drawbacks of bankruptcy and assist you with the entire bankruptcy process.