DEBT CONSOLIDATION: CHAPTER 13 VS. DEBT CONSOLIDATION PROGRAM


It is important to understand the difference between a Debt Consolidation/Counseling Program and Chapter 13 Bankruptcy

There are many advantages to filing a Chapter 13 Bankruptcy. The number one reason is the simple fact that a Chapter 13 Bankruptcy plan has the power of the Federal Bankruptcy Code to oversee it. The Bankruptcy Code protects you immediately upon filing your bankruptcy case. This does not occur when consolidating your debt with a debt consolidation program (perhaps offered by a bank or counseling service). The following advantages apply once you file a Chapter 13:

  1. You have immediate relief by a Court Order to any and all of your current debt collectors. 1) You have immediate relief by a Court Order to any and all of your current debt collectors. All collection action against you is ordered by the court to stop—this is called the Automatic Stay. This collection activity includes (but is not limited to): foreclosure, wage garnishment, vehicle repossession, lawsuits from creditors and creditor harassment.
  2. You can include the following types of debt in a Chapter 13, but not in a debt consolidation program: car payments, mortgage arrears, child support arrears, and tax debt.
  3. Bankruptcy law is Federal law, as opposed to a debt consolidation program. The Court has the power to tell your creditors what to do and when to do it, and to impose punishments when these orders are not followed. With debt consolidation, your creditors can voluntarily opt out at any time.
  4. A Chapter 13 Plan typically lasts for 3-5 years. With a debt consolidation plan, the repayment plan could drag on indefinitely.
  5. There are no interest or late fees paid to creditors in a Chapter 13 plan.
  6. Your attorney is obligated to represent your best interests. With a debt consolidation program, you do not have someone to ensure that you are well represented.
  7. With the power of the Bankruptcy Code, you can prioritize which creditors are paid first, and you are not penalized for given preferential treatment to your home mortgage or car finance company. This is not the case with debt consolidation programs.

While filing bankruptcy may not be right for everyone, you owe it to yourself to see if it is right for you.