Should You Consolidate or Try Chapter 13?

Many people are so afraid of bankruptcy that they’ll try just about anything to avoid having to declare it. That’s why a wide variety of “debt consolidation” programs continue to thrive and operate.

There are multiple types, and each of them come with unique problems.

There are debt consolidation loans, which essentially just take your debt and move it around. Worse, they are usually tied to your home equity. This means you’re taking an unsecured debt and converting it to a secured debt. Worse, you’re securing it with your house, which means the house can be foreclosed on. You do stop all those creditor calls, but you get a huge new interest-bearing monthly payment that’s attached to your most important asset. 

There are also “debt consolidation programs” that claim to have special relationships with various creditors. They almost never do. Instead they take your payment, take a big fee out of it, and then distribute very small micropayments to your creditors. Sometimes these are as low as 10 or 15 cents. They may also direct creditors to begin talking to them about your debts. 

Sometimes this is nice for awhile, but it does not keep creditors from choosing to sue you over debts. This means you could still be facing a wage garnishment, which is legal in New York. Or a lien on your house. Or a levy on your bank account. In addition, if you’re trying to “consolidate” any secured assets, like your car, then these programs won’t keep the repo man from coming. 

In addition, your credit score continues to get worse and worse as time goes on.

Both these programs basically last until you pay off the debt or until something else happens. Usually that “something else” is that you continue to get in over your head in other ways and end up facing down the same dire problems you tried to solve with the consolidation.

Chapter 13 is different in that it consolidates all of your debts into one payment, but protects you from all creditor actions. That means repossessions, that means liens, that means lawsuits. 

You’re also done in 3-7 years. When you’ve finished the plan you’ve finished. Anything that’s left is discharged. You might choose to start paying your house and car note again at the old rate if you want to keep those assets, if they haven’t already been paid off. Otherwise you’re done. The debt is 100% gone instead of continuing to mess up your credit report, and you have a clean slate from which to rebuild your credit.

In some cases, you might not even need Chapter 13 bankruptcy. Chapter 7 may be a better way to go, which means you would have all of your debt discharged even faster. A life of no payments? Who could argue with that?

Think bankruptcy might be a good option for you? Contact our office for a free consultation.

See also:

How to Rebuild Your Credit Score After Bankruptcy

How to Choose the Right Bankruptcy Chapter

Why You Should File Your New York Bankruptcy Now

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