If you are facing financial hardship, you may have been approached with the option to apply for debt consolidation. Debt consolidation involves combining your debts into one, so you have one monthly payment, but it may not be the best choice.
Debt consolidation vs. bankruptcy
Debt consolidation may have some advantages, like reducing your number of payments or preventing varying due dates and sometimes, you may be offered a lower interest rate.
The primary disadvantage though is that debt consolidation does not remove your debt, it just restructures it which means you may continue to have financial difficulties. Instead, there are two bankruptcy options to consider, called Chapter 7 and Chapter 13.
If you file for bankruptcy, it allows you to liquidate assets through Chapter 7 or create a repayment plan through Chapter 13. It also applies an automatic stay, which means that creditors cannot collect on the debt.
With a Chapter 7 bankruptcy, any non-exempt assets may be used to repay creditors. Chapter 13 bankruptcy allows you to keep your assets, but requires that you make a repayment plan, and you must adhere to its terms. Bankruptcy can eliminate unsecured debts and give you a fresh start with your finances.
Before filing for bankruptcy, you should gather information about your income, expenses, assets and debts. You will need this information to complete the bankruptcy forms that accompany the bankruptcy petition. Once the petition is complete you can file it with the bankruptcy court.
You may be required to submit a filing fee; however it may be waived in some circumstances.