Choosing Between Debt Consolidation and Chapter 7

Choosing Between Debt Consolidation and Chapter 7

If you are feeling overwhelmed by your financial situation, you have most likely considered options like debt consolidation and Chapter 7 bankruptcy. The two options are very different and can yield very different results. In the end, it’s about understanding what you can comfortably manage in a set period of time and the most effective option for your situation. In some cases, you also need to look at what you can afford to do when choosing between the two options.

Debt Consolidation

Debt consolidation is a viable option if you can reduce your current payments and are positive you can make the required payments due during a specific period of time. When you consolidate your debts, you more or less sell them to someone else. The individual or company then pays the debts off, and you make your payment to that person or company. It reduces the number of payments you have to make a month, and it also reduces the cost of the payments. Sometimes, debt negotiation is included as a part of consolidation in which the terms of your debt are negotiated. When this happens, many creditors might agree to lower payoff balances, deducting fees, or lower interest rates.

Debt consolidation can simplify your financial situation and make it more manageable for you. One of the benefits is that the debts do get paid off and you don’t have to file bankruptcy. On the other hand, if you over-extend yourself to pay off these debts, you may end up in bankruptcy court anyhow. In fact, many debt consolidation cases lead to bankruptcy anyway because people come to realize they can’t make the requested payments.

Chapter 7 Bankruptcy

There are different types of bankruptcy. Chapter 7 is just one of them. Only individuals can file for this type of bankruptcy while businesses and partnerships have other options. In order to qualify for Chapter 7, you have to be able to demonstrate that your income will not allow you to cover the debts that you owe. This type of bankruptcy is truly for those who have tried to meet their obligations but are mathematically unable to pay them. Once the debts are discharged, the debtor is relieved of their burden and is able to start over. For many people who are in debt, Chapter 7 is the best option.

Chapter 7 may be the more extreme route, but for many, it’s also the most logical. It doesn’t do any good to consolidate debts if you can’t make the payment on the consolidation. In fact, it can end up costing you more money in fees and interest than if you just filed bankruptcy and started over. Choosing between Chapter 7 and debt consolidation, however, is going to depend on your individual debt, income, and many other elements. Your lawyer can help you figure out what’s best for you and navigate what is often an overwhelming and confusing process.

Have you chosen one over the other? Share why you made your decision in the comments.

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