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Bankruptcy vs. Debt Consolidation

When you are in the midst of major financial distress, almost any solution can seem like a good idea. We encourage you to consider some of these points before seeking debt consolidation or giving up altogether. Talk to Dave Hillier about your options. Your initial consultation is cost and risk free. We can provide an objective, experienced point of view to help you make important decisions about rebuilding your financial life.

Debt Consolidation

Debt Consolidation companies cannot offer you any guarantees. If they claim otherwise, be wary. What they offer is negotiation of interest rates, balances and monthly payments for your debts. Creditors are not necessarily obligated to maintain these agreements, and can still sue you or change interest rates. Debt Consolidation can also cause other negative consequences when published on your credit.

Debt consolidation companies usually collect fees up front, ask for monthly fees immediately, and many front-load fees so they get paid whether or not they produce results. Additionally, many consumer credit counselors and Debt consolidation companies are paid by the credit card companies or banks you may already be paying. Debt Consolidation companies are not subject to licensure and regulation is minimal. Some Debt Consolidation companies have gone out of business or have been forced into receivership by the FTC after collecting fees without providing promised services.

Debt Consolidation cannot prevent lawsuits or the enforcement of judgments against you, and does not provide assistance with these procedures if and when they occur. Additionally, these programs may not be able to lower your monthly payments. In some cases, repayment structuring may actually cause monthly payments to increase. Their methods of determining your payment amounts are irregular, inconsistent from company to company, often inadequate and offer no solutions for people who simply cannot afford their debt. All of this bashing of Debt Consolidation companies does not apply to top-quality non-profit counseling agencies, like On-Track here in Asheville.

Filing Bankruptcy provides guarantees and protections under the law. It establishes regulations with which creditors must comply. Bankruptcy is a procedure, not a negotiation. Your plan is based on your ability to pay, not what a debt consolidation employee or creditor decides you can pay based on their assumptions. Bankruptcy can reduce interest rates to 0%, discharge many kinds of debt and can reduce or eliminate aging IRS debt, as well.

If you file Bankruptcy with the guidance of an experienced Bankruptcy attorney, you have someone on your side with a legal and ethical obligation to represent your interests. Your attorney has no bias in favor of credit card companies or banks. He will ensure your rights are protected. Attorneys are trained to understand complex Bankruptcy code and law, and can inform you of your rights and options.

Rebuilding Credit

While both options can have a negative impact on credit score, Debt Consolidation provides none of the guarantees or protections offered under Bankruptcy law. Your credit remains vulnerable during debt consolidation, but the automatic stay of Bankruptcy protects your credit score from further harm during the payment period. You are also unable to use or attain more credit while in a Debt Consolidation plan; not so when you file for Bankruptcy. Many people are able to apply for new credit in under a year after their filing.

Bankruptcy is done all at one time, so you have a clear plan with a simple beginning and ending, while debt consolidation can drag on for years without significantly lowering balances. If you are unable to complete your Debt Consolidation plan or unable to afford it, you lose all of the time you spent using the plan previously. In Bankruptcy, all of that time would have counted toward your recovery.

The Debt Consolidation process can take 6 months to a year for settlements to come in (each one at a different time since creditors are negotiating separately). With the help of an attorney to streamline the process, Bankruptcy covers everything, and gets your discharge in about four months from beginning to end. See the Frequent Questions Section of our site.

Property Protection

Debt Consolidation generally deals with only your unsecured loans, leaving your house and cars vulnerable to repossession by creditors. Bankruptcy covers almost everything (student loans and IRS debts receive special consideration). Some Debt Consolidation programs may involve high-risk home equity loans placing your greatest asset in jeopardy should the plan not work. And, as you recover under these programs, things like paying down your car, inheriting money, getting a tax return or seeing your home increase in value, could make your property subject to seizure by creditors.

In most cases, Bankruptcy allows you to keep your personal property, offers exemptions to protect home equity, protects you from lawsuits and judgments against your possessions, and will not allow creditors to continue to harass you in any way.

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Regaining Financial Control

When you undertake debt consolidation, you are entrusting your future to an unknown, legally untrained, third party, and many times, with negative results.

What many debt consolidation companies will not tell you is that some creditors will not deal with debt consolidation or entertain restructuring for customers who pay their bills on time. Creditors often only work with people who are 60 to 90 days late on payments, and have credit histories which are already damaged.

Filing Bankruptcy is voluntary, protects your assets and future creditor actions, and it gives you a realistic chance to rebuild your financial health without fear of further consequences. During Bankruptcy, creditors have to file their claims, and a plan is created or debts are discharged. This plan is based on personal circumstances and considerations in which you can afford within Bankruptcy law guidelines, and is determined by a Means Test which applies to everyone.

The automatic stay offered through Bankruptcy immediately stops and/or prevents harassing phone calls and threatening letters from creditors, as well as any current or future credit related lawsuits against you.

The bottom line is filing Bankruptcy gives you the relief of clearing the slate by dealing with all of your debts at once. It's not a 'pick and choose' process. You regain some power in getting your life back on track, you have a clear plan to recover and succeed, and you have the ability to improve your quality of life. There is an end in sight, and a chance to get off the merry-go-round and move forward.

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Image of Mr. Hillier behind his desk with his hands folded. On his desk in front of him is a folder labeled bankruptcy.

Bankruptcy vs. Debt Consolidation

When you are in the midst of major financial distress, almost any solution can seem like a good idea. We encourage you to consider some of these points before seeking debt consolidation or giving up altogether. Talk to Dave Hillier about your options. Your initial consultation is cost and risk free. We can provide an objective, experienced point of view to help you make important decisions about rebuilding your financial life.

Debt Consolidation

Debt Consolidation companies cannot offer you any guarantees. If they claim otherwise, be wary. What they offer is negotiation of interest rates, balances and monthly payments for your debts. Creditors are not necessarily obligated to maintain these agreements, and can still sue you or change interest rates. Debt Consolidation can also cause other negative consequences when published on your credit.

Debt consolidation companies usually collect fees up front, ask for monthly fees immediately, and many front-load fees so they get paid whether or not they produce results. Additionally, many consumer credit counselors and Debt consolidation companies are paid by the credit card companies or banks you may already be paying. Debt Consolidation companies are not subject to licensure and regulation is minimal. Some Debt Consolidation companies have gone out of business or have been forced into receivership by the FTC after collecting fees without providing promised services.

Debt Consolidation cannot prevent lawsuits or the enforcement of judgments against you, and does not provide assistance with these procedures if and when they occur. Additionally, these programs may not be able to lower your monthly payments. In some cases, repayment structuring may actually cause monthly payments to increase. Their methods of determining your payment amounts are irregular, inconsistent from company to company, often inadequate and offer no solutions for people who simply cannot afford their debt. All of this bashing of Debt Consolidation companies does not apply to top-quality non-profit counseling agencies, like On-Track here in Asheville.

Filing Bankruptcy provides guarantees and protections under the law. It establishes regulations with which creditors must comply. Bankruptcy is a procedure, not a negotiation. Your plan is based on your ability to pay, not what a debt consolidation employee or creditor decides you can pay based on their assumptions. Bankruptcy can reduce interest rates to 0%, discharge many kinds of debt and can reduce or eliminate aging IRS debt, as well.

If you file Bankruptcy with the guidance of an experienced Bankruptcy attorney, you have someone on your side with a legal and ethical obligation to represent your interests. Your attorney has no bias in favor of credit card companies or banks. He will ensure your rights are protected. Attorneys are trained to understand complex Bankruptcy code and law, and can inform you of your rights and options.

Rebuilding Credit

While both options can have a negative impact on credit score, Debt Consolidation provides none of the guarantees or protections offered under Bankruptcy law. Your credit remains vulnerable during debt consolidation, but the automatic stay of Bankruptcy protects your credit score from further harm during the payment period. You are also unable to use or attain more credit while in a Debt Consolidation plan; not so when you file for Bankruptcy. Many people are able to apply for new credit in under a year after their filing.

Bankruptcy is done all at one time, so you have a clear plan with a simple beginning and ending, while debt consolidation can drag on for years without significantly lowering balances. If you are unable to complete your Debt Consolidation plan or unable to afford it, you lose all of the time you spent using the plan previously. In Bankruptcy, all of that time would have counted toward your recovery.

The Debt Consolidation process can take 6 months to a year for settlements to come in (each one at a different time since creditors are negotiating separately). With the help of an attorney to streamline the process, Bankruptcy covers everything, and gets your discharge in about four months from beginning to end. See the Frequent Questions Section of our site.

Property Protection

Debt Consolidation generally deals with only your unsecured loans, leaving your house and cars vulnerable to repossession by creditors. Bankruptcy covers almost everything (student loans and IRS debts receive special consideration). Some Debt Consolidation programs may involve high-risk home equity loans placing your greatest asset in jeopardy should the plan not work. And, as you recover under these programs, things like paying down your car, inheriting money, getting a tax return or seeing your home increase in value, could make your property subject to seizure by creditors.

In most cases, Bankruptcy allows you to keep your personal property, offers exemptions to protect home equity, protects you from lawsuits and judgments against your possessions, and will not allow creditors to continue to harass you in any way.

Regaining Financial Control

When you undertake debt consolidation, you are entrusting your future to an unknown, legally untrained, third party, and many times, with negative results.

What many debt consolidation companies will not tell you is that some creditors will not deal with debt consolidation or entertain restructuring for customers who pay their bills on time. Creditors often only work with people who are 60 to 90 days late on payments, and have credit histories which are already damaged.

Filing Bankruptcy is voluntary, protects your assets and future creditor actions, and it gives you a realistic chance to rebuild your financial health without fear of further consequences. During Bankruptcy, creditors have to file their claims, and a plan is created or debts are discharged. This plan is based on personal circumstances and considerations in which you can afford within Bankruptcy law guidelines, and is determined by a Means Test which applies to everyone.

The automatic stay offered through Bankruptcy immediately stops and/or prevents harassing phone calls and threatening letters from creditors, as well as any current or future credit related lawsuits against you.

The bottom line is filing Bankruptcy gives you the relief of clearing the slate by dealing with all of your debts at once. It's not a 'pick and choose' process. You regain some power in getting your life back on track, you have a clear plan to recover and succeed, and you have the ability to improve your quality of life. There is an end in sight, and a chance to get off the merry-go-round and move forward.

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Bankruptcy Specialist

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Bankruptcy Articles

Common Questions & Concerns

Most people share the same fears, questions and beliefs about bankruptcy. The following are some of the most common of these fears, questions and beliefs. Be sure to check out our Common Myths page and blog section for further information about bankruptcy misconceptions.

Click on the titles below to toggle on and off pertinent information.

What is Bankruptcy?

Bankruptcy is a federal legal process whereby the United States Courts forgive consumer and corporate debt in exchange for forthright and complete disclosure of your financial profile and distress. All successful bankruptcy outcomes are predicated on honest assessment and evaluation. We've created our online Bankruptcy Questionnaire to help you organize your thoughts and information, and to allow us evaluate your financial image and prepare for your consultation.

<a href="https://ghma.law/what-is-bankruptcy/" title="What is Bankruptcy?">... read more >>></a>

Is Bankruptcy Right for Me?

We understand that your sense of pride, or guilt, may prevent you from considering bankruptcy. These emotions may prevent you from contacting a lawyer to discuss the options to help lift you out of financial desperation. Nearly 2 million people filed bankruptcy in 2010, the highest number in recorded history.

<a href="https://ghma.law/is-bankruptcy-right-for-me/" title="Is Bankruptcy Right for Me?">... read more >>></a>

What Bankruptcy Should I File?

The type of bankruptcy filing that is correct for you is not a decision to be taken lightly. Many elements of the bankruptcy process are unchangeable once decided, and qualified legal advice following a thorough financial assessment is decidedly the best path to follow. With that said, the three main types of bankruptcy are briefly outlined here. A video describing elements of different types of bankruptcy produced by the US Court System is provided <a href="https://ghma.law/bankruptcy-basics-part-i-introduction/" title="Video - Types of bankruptcy">here</a> for your review as well.

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How Does Filing Effect My Credit?

A negative effect on your credit score should not be the sole factor in a decision to file bankruptcy. Many times, people wait too long to declare bankruptcy in fear of damaging their credit report. You might be surprised to know that declaring bankruptcy can be a very positive start towards repairing your credit rating. Most people in serious, embedded financial crisis have credit scores that reflect that situation. Experian spokesman, Rod Griffin says, "In virtually every instance, the consumer will already have repayment problems such as late payments, very high balances, charged-off accounts or collection accounts".

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How Does Bankruptcy Work?

In very simple terms, filing bankruptcy stops foreclosure actions and other creditor collection activities through the court's issuance of what is known as an "automatic stay". Ultimately, the Bankruptcy Court will issue an order which eliminates or otherwise adjusts responsibility to pay certain debts accumulated by an individual or business.

What Exemptions Are Available?

North Carolina recently expanded it's statutory consumer bankruptcy exemptions to include $35,000 of homestead equity, $3,500 exemption toward the value of a motor vehicle, $5,000 exemption toward the value of personal household items, and a $5,000 exemption towards other property commonly considered a "wildcard". Typically, filing bankruptcy jointly for families doubles these deduction limits. There are a number of strategies available to maximize these exemptions. Dave Hillier can help ensure you receive the maximum exemptions available to you in the bankruptcy process.

How Do I Pay My Attorney Fee?

When it comes right down to it, the primary role of a bankruptcy attorney is to create a strategic plan that ensures a brighter financial position for you at the end of the process than the one you were experiencing at the beginning. We will be clear, and ensure you understand filing costs and attorneys fees, and only recommend bankruptcy if a measurable benefit can be acquired. Tax refunds, family funds, or, more often than not, money you have been using to pay creditors, are possible sources of your attorney fee. Dave offers a number of payment plans.

Bankruptcy Credit Counseling

In 2005, the US Congress undertook bankruptcy reformation, and established the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). The law requires credit counseling from an approved credit counseling agency as a prerequisite to filing bankruptcy. Dave will help educate you about these new counseling requirements, and help you understand how this counseling can be an important step in achieving financial health and well being.

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