Debt Consolidation vs. Bankruptcy

Debt Consolidation may result in very high fees being paid with very little benefit. In most cases, the client is better off in bankruptcy. Why? Reason 1: Lower fees and costs. Reason 2. Credit Card Companies cannot “opt out” of a bankruptcy repayment plan. Reason 3: Credit card interest stops accumulating.

Reason 1. Read the fine print. Debt consolidation schemes are expensive. Attorney’s fees and costs are cheaper because they are somewhat regulated by the bankruptcy court. Not true in the dog-eat-dog world of debt consolidation. Some of the consolidation companies are actually owned by the credit card companies. Many clients pay huge fees in these consolidation plans for up to three years only to find out that they have simply being paying the fees and costs of debt consolidation. Eventually, credit card companies start to withdraw from the consolidation scheme and the client is back in trouble with the various credit card companies.

Reason 2. Not everyone will need to repay debts inside of a bankruptcy case. But even if a repayment plan is required, the credit card companies cannot “opt out” of the bankruptcy-repayment plan. They cannot attempt to collect by garnishing wages or bank accounts once the bankruptcy has been filed. In a voluntary debt consolidation plan, a credit card company can break the agreement and garnish wages, bank accounts, etc.

Reason 3. Credit card interest stop accumulating once a bankruptcy case is filed. Again, not all bankruptcy cases require a repayment plan. Furthermore, many bankruptcy repayment plans require that only fifteen cents on the dollar be repaid to the credit card companies.

So who benefits from debt consolidation? Very few. When a debtor has a lot of wealth in the form of non-cash assets, a debt consolidation may be a cheaper option than bankruptcy. In this instance, the credit card companies may offer a deal settlement offer than a Trustee in bankruptcy. This situation does not occur very often. And the good news is this: the client can always explore the bankruptcy option first and then go for the debt consolidation as a back up plan. However, bankruptcy will typically be the cheaper option.

My initial telephone consultation is free and will help you determine which is your cheaper option.