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Choosing Bankruptcy or Debt Consolidation

  • Published: 2010-07-17 (Revised/Updated 2010-09-12) : Macco & Stern LLP.
  • Synopsis: Finance information on deciding between bankruptcy filing or debt consolidation.

Main Document

Bankruptcy or Debt Consolidation: Which Path Should You Take- What is right for someone else may not be right for you. It is vitally important that you find the debt relief option that best meets your needs.

If you feel overwhelmed by seemingly insurmountable debt caused by a prolonged illness, job loss, failing business, divorce or other reason, you may be considering a bankruptcy filing or debt consolidation. The goal of both of these options is to help you regain control of your finances, but they are wildly different. What is right for someone else may not be right for you. It is vitally important that you find the debt relief option that best meets your needs.

Higher-Value, Complex Debt-Bankruptcy Might Be Your Best Bet.

Complicated debts (like those involving one or more mortgages, car payments, mixed-ownership-assets and those of high value) may be best resolved through a Chapter 7 or Chapter 13 personal bankruptcy filing. An important benefit of bankruptcy is that it brings immediate relief: all collection actions - including foreclosures, garnishments, repossessions and creditor harassment - must stop when a bankruptcy proceeding begins. Chapter 7 bankruptcy will discharge your unsecured debt, wiping the slate clean quickly. Chapter 13 may not discharge as many of your debts immediately, but it does combine them into a single monthly payment that you will make for a set period.

Both of them give you the time you need to get back on your feet, are cost-effective options, put an end to the harassing phone calls and threatening letters you are getting, and let you save money in the long run. Another advantage of filing for bankruptcy is that the process (and the attorneys themselves) is highly regulated by federal statutes and state ethical guidelines.

Pros and Cons of Debt Settlement

In a nutshell, debt consolidation combines multiple smaller debts into a single larger one. In theory, this is a great idea, as it would allow a debtor to make only one monthly payment to reduce debt quickly. Unfortunately, debt consolidation is not the "miracle cure" that many people believe it to be. Though it is true that some companies offering these services are honest and altruistic, dedicating themselves to helping their customers get out from under debt and only charging a nominal fee for their services, some are not.

Disreputable companies charge excessive fees for empty promises. Some say that they can "negotiate with your creditors" to settle your debt - there is no guarantee that a negotiation will prove to be successful, and you could directly contact the company for a settlement discussion for free. Many people actually find themselves in worse shape after attempting a debt settlement; they have now wasted time, money and energy trying in vain to resolve their debt.

Where Should You Turn for Help

If you are facing insurmountable debt, you are likely confused about where you can turn for help. Your best bet, whether you are leaning towards bankruptcy or debt consolidation, is to contact a law firm with in-depth knowledge of a wide range of debt relief options.

Article provided by Macco & Stern LLP Visit us at

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