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Chapter 13 Bankruptcy Vs Debt ConsolidationBoth chapter 13 bankruptcy and debt consolidation are forms of
reorganization debt to come to more manageable terms of repayment for
the debtor over a prearranged period. However there are significant
differences between these two types of consolidation. Mainly in
traditional debt consolidation your debts are grouped into one loan and
paid over time at a rate negotiated or set by the consolidating agency.
There are some advantages to debt consolidation over bankruptcy, rather
than owe many creditors you'll simply owe one and although the interest
rate may be lower the monthly payments may be larger.Traditional
debt consolidation can offer using Chapter 13 bankruptcy. The main
benefit of chapter 13 bankruptcy is that it has certain legal aspects
that provide a layer of protection that you simply can not get from any
other debt consolidation program. The power of the federal bankruptcy
code stands following your right of bankruptcy protection and that
protection remains until your case is sorted out in a federal court.
Another benefit of chapter 13 is that your secured debts have the
priority, these are the loans on your home, auto and anything that has
a substantial guarantee then your unsecured debts are taken care of if
there is money left over. Traditional consolidation loan programs can
not delay payment on either type of debt, it all has to be considered
equally important.Debt consolidation also has a lesser impact
on your credit report and it can be a good alternative for someone with
disposable income and too much consumer debt, but the circumstances
change a lot per case, so although debt consolidation can help you
greatly, if you do not change your financial habits you can end up with
more trouble than you started with.In Chapter 13 Bankruptcy
“Order of Relief", provides that protection that keeps your creditors
from harassing you in their attempts to collect payments from you. This
order also has the power to stop foreclosure proceedings, recovery of
any security assets or any compilation judgments against you from
taking place. There are no equivalent benefits in debt consolidation
that can provide this level of protection and your creditors can not be
forced to stop their attempts to collect from you. Under chapter 13
bankruptcy you get between 3 and 5 years to complete repaying your
debts under a new restructured plan of repayment, which typically can
lower your payments by reducing the balances and the interest rate due.
Under traditional consolidation loans the debt can be carried over for
years without reducing the balance significantly. Some debt
consolidation programs may require you to post some kind of guarantee
and typically they prefer your home if it has a good level of equity.
Chapter 13 bankruptcy requires no guarantee and furthermore it protects
you home from being at risk of repossession or foreclosure. Unclaimed
debts are eliminated When you file chapter 13 bankruptcy all your
creditors are required to file a proof of claim with the bankruptcy
court, often some creditors will not file this claim for whatever
reasons, but it they do not and you finish your repayment period to
satisfy your debts then any unclaimed debts are eliminated and you're
no longer obligated to repay them once your case is discharged. No
other consolidation program can extend this benefit.Most debts
are included in your chapter 13 bankruptcy case normally under a debt
consolidation program. You are not able to include all your debts, some
programs only work with credit card debt, while a separate agency may
specialize in tax debts. In chapter 13 you can include tax arrears,
mortgage arrears, child support and alimony payments, secured and
unsecured debts all under the same plan providing you with the same
level of protection from all creditors.
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