Debt Consolidation vs. Bankruptcy

There are several options available to those who are dealing with a financial hardship. For many, the first option they explore is a debt settlement/consolidation agreement. Debt settlement/consolidation agreements involve a debtor engaging directly with his or her creditors in an effort to reduce their total financial obligation or alter repayment terms. The process of negotiating a debt settlement/consolidation agreement with one's creditors can vary greatly from filing for chapter 7 or chapter 13 bankruptcy. One major difference is that debt settlement/consolidation agreements are voluntary on the part of creditors, meaning that creditors can refuse to negotiate or be part of a debtor's consolidation plan. With bankruptcy, creditors do not get to choose whether or not their claims will be treated in the bankruptcy process. Second, with debt consolidation plans, there are no guidelines in place for determining the amount of money to be repaid to creditors. With bankruptcy, there are laws and protections in place to determine whether a debt is required to be paid and how much interest, if any, is to be paid to a creditor. Finally, unlike a debt consolidation agreement, a bankruptcy filing triggers an "automatic stay" which stops foreclosure, auto repossession, wage garnishment, pending lawsuits and any other collection efforts by creditors. There is no such protection with debt consolidation agreements.

Douglas County Bankruptcy Lawyers has consulted with clients considering both debt consolidation and bankruptcy. We have worked with these clients to evaluate their specific needs and determine which option is best for them. Call today for a free evaluation of your case.