For most people struggling with debt, filing for bankruptcy isn't the first solution that pops into mind.
If you're buried under multiple credit cards and loans, chances are that you've considered debt consolidation.
By combining your debts together into one monthly payment, it's easier to keep track of repaying your debt.
Plus, you also enjoy the benefit of one payment instead of staying on top of bills from multiple loans and lenders.
While consolidating your loans and debts is a great opportunity, is it really the best alternative to bankruptcy? Why Bankruptcy is the Best Option If you're stuck between the choice of consolidating your loans and debt versus filing for bankruptcy, it's important to consider your entire financial situation.
First, be sure to check your credit report.
Aside from seeing your overall score, analyze your negative items such as late payments.
This will allow you to fully see the extent to which you're indebted.
Once you have this information, you can calculate the total debt you owe and compare it to your total income.
If your income isn't equal to or doesn't exceed the basic costs of living, then consolidating your loans isn't for you.
Even if your income exceeds your basic financial needs, don't cross bankruptcy out of the picture until you've considered the following benefits: 1.
Consolidation.
A Chapter 13 debt reorganization plan essentially gives you the same benefits of consolidating your loans and debts.
Aside from combining your debts into a single, monthly payment, bankruptcies provide you certain legal protections and advantages that a traditional consolidation can't.
2.
Automatic Stay.
If you've ever fallen behind on your payments, then you know how cruel and relentless collectors can be.
They'll flood you inbox, mailbox, and keep your phones ringing throughout the day.
Fortunately, filing for bankruptcy initiates what's known as "automatic stay," which immediately prevents nearly all collection activity against you.
On the other hand, consolidating your loans and debts doesn't stop any of these harassments.
3.
Reduced Debt.
While consolidating your loans and debt will make it more bearable to survive financially, bankruptcy gives you the opportunity to discharge debt.
Even in a Chapter 13 filing where debts are reorganized, certain qualifications will allow you to only pay as little as 10% of your unsecured debts.
4.
Bankruptcy Attorney.
Working with a bankruptcy attorney provides you with insight, legal guidance, and professional leadership to help you achieve a fresh financial start.
Compare this to consolidating your loans and debts, where you largely work on your own and you don't have an ally working in your best interests.
Because a bankruptcy attorney is trying to help you achieve the best outcome possible, you know that your actions will only strengthen your financial profile.