Bankruptcy vs. Debt Consolidation: Know the Difference!
So, the late-night ads are luring you in, and you really don’t want to use the “bankruptcy tool,” but how do you know which option is best for you?
The Risks of Debt Consolidation Services
Debt Consolidation is a paid service in which the company you hire makes deals for payments or lump settlements with your creditors. This, if done properly, can be effective in some cases.
However, the issue with this option is that it is expensive. By the time you have deposited enough money with the hired company, you could be facing lawsuits, judgments, and garnishments.
Why is this risky?
No Legal Protection: The majority of these companies are not run by (nor do they employ) attorneys, so they cannot help you when you get sued for not paying your bills while in their program.
High Fees: Most of these programs take their fees “off the top” of what you pay them monthly before they even start to negotiate with your creditors.
Why Bankruptcy is a Legal Solution
Unlike consolidation services, Bankruptcy is a legal solution to get out of debt. The Bankruptcy Court will manage the case filed by your attorney to release you from your dischargeable debt through either a Chapter 7 or Chapter 13 bankruptcy filing.
Chapter 7 Bankruptcy (Liquidation)
The Chapter 7 bankruptcy filing is a “liquidation” bankruptcy. That means that if you have assets that are not exempt under Ohio exemption laws, the assets will have to be sold and the proceeds used to pay your creditors some of what they are owed.
Chapter 13 Bankruptcy (Repayment Plan)
The Chapter 13 bankruptcy offers options to pay a portion—usually not the total of what you owe—to your creditors over a period of up to 5 years.
The Advantages of Filing Bankruptcy
The main advantage of bankruptcy is that the Court monitors the case. Once you file:
- Lawsuits stop: Collection efforts and creditor harassment must cease immediately.
Guaranteed Result: You have a guaranteed result so long as the filer follows the law and the plan.
Lower Cost: Bankruptcy is usually the less expensive option compared to the high fees of consolidation.
Get a Fresh Start in Mentor, Ohio
Know your options before you make a decision. Contact Moseman Law Office in Mentor, OH, for help with getting out of debt the right way for you.