Looking For Information On Debt Consolidation?

Just Make Sure You Are Not Being Lured Into Filing Bankruptcy

Unfortunately, some lawyers advertise assistance with, and information on debt consolidation only to steer the client into a bankruptcy filing further down the road.

Now, perhaps they justify this by the fact that Chapter 13 bankruptcy is really a pseudo debt management plan (which is another name for debt consolidation), but nonetheless, advertising for one service and then steering clients into another is questionable practice at best. (Want to learn more about how debt consolidation works? Here is an article that explains the two types of debt consolidation.)

Information On Debt Consolidation

Many lawyers will tell you that debt consolidation is in a way similar to Chapter 13 bankruptcy, except that on a debt consolidation plan you have to pay back your debts in full, and it does not protect you from creditors. These are no small differences it's true, yet the premise of both plans is the same.

A debt consolidation plan is typically run by a credit counseling agency. Concessions from your creditors in the form of interest rate reductions, penalty and late fee elimination and monthly payment adjustments are negotiated by the credit counselor on your behalf. The actual amount of the debt however, is not lowered, and your creditors are not forced in any way to participate.

Once these concessions are in place, you then make one payment each month to the credit counselor who then makes sure that your creditors get paid in turn. The goal of the plan is to get you out of debt within five years.

How Does Chapter 13 Bankruptcy Differ From Debt Consolidation

If you choose Chapter 13 bankruptcy as opposed to debt consolidation, you also go on a payment plan to try and pay off your debts. It's similar to debt consolidation, but different as well. With a Chapter 13 bankruptcy filing...

  • you are protected from your creditors
  • your creditors must participate (if they want to get paid)
  • the actual amount of the debt you have to repay is usually reduced, not just the interest rates etc.

It is likely that lawyers offering information on debt consolidation to a prospective new client often point out these similarities and differences in order to persuade the client towards bankruptcy.

Is Chapter 13 Bankruptcy The "Better" Choice Anyway?

Now, I am not arguing that many people who seek information on debt consolidation wouldn't actually be better served by filing bankruptcy. In fact, often times people who seek advice from a credit counselor on getting rid of their debts are steered into a debt consolidation plan when in fact they would have been much better off going right into a bankruptcy filing. So I suppose it works both ways. I always tell people that one of the keys to successful debt elimination is to make sure you end up in the proper debt relief program based on your current financial situation.

But how do you do that? How do you know that you are not being lead down the garden path? Well, my two best suggestions are...

1. Do your homework. Get to know your options and what is involved with each one. Fees, time lines, types of debts that can be included. You need to know all these things for each debt relief option. (Here is an comprehensive article which explains your options for getting out of debt. It's an excellent place to start "your homework".)

2. Speak to a company that provides all of the different options. This is the best way ensure that you get as unbiased advice as possible regarding which program would best suit your needs.

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