Debt Consolidation or Bankruptcy: How to Choose

terri-november-week-2-img-debt-consolidationBeing in debt is nothing unusual. We all have bills, mortgages, student loans, car payments. But when debt becomes overwhelming, it creates a sense of panic, loss of control and fear of the future. There are a number of ways to address this stress and to resolve the issues, but if you don’t have a good understanding of each of the options available, you may make the wrong decision and end up in worse shape then you were when you started out. One example is the decision that many face as to whether to file for bankruptcy or to opt for debt consolidation. The Philadelphia bankruptcy attorneys at Erik B. Jensen Attorneys at Law have extensive knowledge experience of the advantages and disadvantages of both, and want to make sure that you have a good understanding of each before making your own personal decision.

Debt consolidation does not in any way eliminate your debt. What it does do is replace your old debt by taking on a new loan. In most cases the new loan will be at a lower interest rate, which means that your overall monthly payments will be lower. However, you will likely be charged a fee for transferring your balance to the new loan, and this may offset the monthly savings that are attracting you in the first place.  But it is important that you understand how debt consolidation companies work. In many cases you provide the company with all of your bills and then stop paying those bills. The debt consolidation company will keep some of the monthly fee that you pay them for themselves and use the rest to begin making payments to your creditors, but they often try to negotiate with your creditors to pay them less then you originally owed. If the creditors are not amenable to this, they can send your debt to a collection agency, and your credit will be negative impacted. Your wages can be garnished: worst of all, there is a chance that you will end up owing more in taxes because any debts that have been forgiven may be viewed as income. Suddenly debt consolidation seems like a very expensive and stressful proposition.

By contrast, filing for bankruptcy provides you with protection from your creditors. Though your credit rating will suffer for a period of time, you also will have the security of knowing that many of your assets are protected and you will be protected from garnishments and judgement. You don’t need to worry about creditors rejecting your bankruptcy, as they have no say in the matter, and there will be no tax repercussions from your discharge.

Though you may think of a bankruptcy filing in a negative light and think that debt consolidation shows that you are still trying to pay your bills, the reality is that it can leave you in a much deeper hole. It is essential that you go over your options with an experienced and knowledgeable Philadelphia bankruptcy attorney before taking any action. Call the law offices of Erik B. Jensen today to set up a convenient time to meet.