Chapter 13 bankruptcy or debt consolidation – Which is better?

When you are dealing with financial difficulties, then the best thing that you can do is to choose an option that causes the least damage. If you have incurred a huge amount of debts, then you must be seeking debt help. There are various options that can provide you relief from all your debt issues. Credit counseling, debt consolidation, debt settlement and filing bankruptcy are the most common options. Among them debt consolidation and bankruptcy are the most sought after options. If you are also confused about which option to consider, then read on to know more about them.

The benefits of Chapter 13 bankruptcy over debt consolidation:
Chapter 13 bankruptcy is a legal process that differs from traditional debt consolidation in more than one ways. Read on to know about them.

1. Chapter 13 protects you immediately as you file for it: An automatic stay will come into effect as soon as you file for Chapter 13  bankruptcy. It is a form of Bankruptcy Court injunction which stops almost all kinds of recovery efforts that have been lodged against you.Garnishments, foreclosures, repossessions, creditor calls will cease immediately. It's a court order that mere debt consolidation services cannot provide.
On the other hand, when you enroll yourself in a debt consolidation program, your creditor calls may not stop harassing you. They may keep on  coming in spite of the negotiations of your debt consultant with your creditor. In short, the action is not as serious and prompt as in Chapter 13.

2. Chapter 13 covers most debt: This is another advantage of paying off  your debts through a Chapter 13 bankruptcy. This covers most debts including tax debts, child support debts, car loan debts, mortgage arrears etc. This is not the case when you seek debt help from traditional debt consolidation services. The debt consolidation companies only help you with  paying off unsecured debts like credit card debts, utility bills, medical bills etc. Thus if you have incurred secured debts, you cannot get rid of it  through debt consolidation. You can repay it through the Chapter 13 repayment plan.

3. Reduces debt amount significantly: When the Federal Judge asks your  creditors to stick to a repayment plan, you may also be allowed to pay 10% of your unsecured debts provided you meet with certain requirements. If you  can meet these requirements, then the rest of the amount may be eliminated. This will help you pay off your debts faster. This is not possible in debt consolidation as it only allows a lower interest rate and lower monthly payments.

Your current financial situation decides which debt help option will suit you better. Even though you may be struggling with your finances, you may not qualify for bankruptcy. Consider an attorney for further advice. Also consider the impact of bankruptcy on your credit score before filing for it.