Debt consolidation has always been one of the preferred suggestions given to debtors who others want to forgo their bankruptcy options. But the reality is that debt consolidation is not for everyone and may be even be harmful to certain debtors. Below are a few reasons why Chapter 13 bankruptcy may be a better option than debt consolidation:
- Debt consolidation companies do not have the weight of the law backing them. While some debt consolidation companies have relationships with some financial institutions, they do not have any power to force creditors to consolidate your loans. When a debtor files for Chapter 13 bankruptcy, creditors have no choice, they must comply with the orders of the bankruptcy trustee and judge.
- Debt consolidation companies cannot include tax debts, child support or debts such as speeding tickets in your debt consolidation plan. When a debtor files Chapter 13 bankruptcy, all of their debts are included in the bankruptcy repayment plan.
- Debt consolidation may not protect debtors from receiving harassing calls and letters from debt collectors. A matter of fact, while some creditors will stop calling and writing after a debt consolidation plan has been put in place, they have no legal obligation to do so. Chapter 13 bankruptcy immediately prohibits creditors from contacting you and if they do contact you they may face sanctions from the bankruptcy court.
- When a debtor enters a debt consolidation plan, like Chapter 13 bankruptcy they must pay into the plan for years; but unlike Chapter 13 bankruptcy, they have no opportunity to discharge any of that debt. Chapter 13 bankruptcy not only allows some debtors to partially discharge some of their debt, they may also allow a hardship discharge or even a conversion of the case to Chapter 7 bankruptcy if they debtor experiences more financial difficulties during the course of the repayment plan.