Benefits Of Chapter 13 Bankruptcy Over Debt Consolidation

Have you spent months dealing with creditors, dodging collection calls, and figuring out how to address the fact that you have more debt than you can manage? You don’t have to do it alone. Schedule a consultation with me at the Law Offices of Terrence Fantauzzi. We can sit down in person, on the phone, or via video conference and discuss the details of your situation and if bankruptcy is your best next step.

I negotiate with creditors and help clients who are overburdened with debt. Bankruptcy is a last resort, and you may not need that option yet. However, filing for debt relief with a skilled Chapter 13 attorney does come with some long-term benefits you don’t get when using debt consolidation or other debt relief methods. Reach out today to learn more about the benefits of Chapter 13 bankruptcy over debt consolidation in Rancho Cucamonga.

Debt Consolidation in Rancho Cucamonga

For consumers with large balances and high-interest loans, consolidating two or more separate debts into a single debt is often beneficial. This can include virtually any financial obligations, such as:

  • Car loans
  • Credit card debt
  • Medical debt

Everyone’s financial situation is unique, which means even if debt consolidation was the right choice for a family member or friends, it might not be right for you.

Please note that spousal and child support cannot be folded into a debt consolidation payment. You generally must also address most tax burdens separately.

Pros of Consolidating Debt

By combining them into one new loan, you only have one monthly payment and ideally, a more competitive interest rate. Not only are you simplifying your finances, but you may be saving money that may have been spent on the higher interest loans. The new loan can have a fixed repayment schedule, so you’ll know when the last payment will be. It can help you repay debts sooner, which can be instrumental in boosting credit.

Cons of Consolidating Debt

Although you may get a lower interest rate through consolidation, it’s not guaranteed. The lower your credit score, the higher the interest. You may be able to extend the loan term but end up spending more in the long run because of the interest. Another downside is the upfront costs, which can include fees on elements such as:

  • Balance transfers
  • Annual fees
  • Closing costs
  • Loan origination fees

If poor spending habits are responsible for your financial situation, one of the biggest drawbacks is that debt consolidation doesn’t help you learn a better approach. Many people who live outside their means wrack up more debt once the consolidation is complete.

Create a realistic budget and stick to it to prevent falling into old habits. As part of your monthly finances, build an emergency fund that you can use when unexpected expenses arise. If are uneasy about the potential drawbacks of debt consolidation, you may benefit from pursuing Chapter 13 bankruptcy.

Benefits of Filing for Chapter 13 Bankruptcy

Many people want to avoid bankruptcy because their credit score will take a hit. Some people try other options because they fear losing their house and other assets. However, if you’ve been dealing with debt collectors, missed several monthly payments and have a mailbox filled with past due notices and threatening letters, filing bankruptcy can stop those activities immediately.

Chapter 13 of the Bankruptcy Code helps individuals with steady income repay overwhelming debt, entirely or in part, with an installment plan that lasts three to five years. Although you can complete Chapter 7 in a matter of months if you qualify, Chapter 13 has several long-term advantages that make it more appealing.

An Automatic Stay Goes into Effect

Upon filing a bankruptcy petition, an automatic stay goes into effect.  An automatic stay is a court-ordered injunction that prohibits debt collectors from contacting you and it stops all activities such as:

  • Repossessing vehicles
  • Enforcing a lien against estate property
  • Continuing or initiating a tax liability proceeding
  • Enforcing a judgment
  • Continuing or starting administrative or judicial proceedings

If your wages are being garnished, that also stops. The automatic stay remains in place until your bankruptcy proceedings are finished. For Chapter 13, this means that all collection activities are paused until your repayment plan is complete. Since many, if not all creditors will likely be part of the payment plan, you will have fewer financial issues when you’re done.

Make Affordable Payments

Your monthly payment amount is based on your budget and also called disposable income. You and your attorney create it by taking your actual monthly expenses, IRS requirements and standards of the Chapter 13 trustee assigned to your case. It allows you to make one payment for all your debts and only pay what you can afford.

From the day your bankruptcy is approved, you stop accruing interest and at the end of the repayment plan, any remaining qualifying debts will be discharged. For example, if you’re paying 18% interest on $30,000 in credit card debt, and interest stops accruing, you can save about $19,000 over a five-year repayment period.

Stop Foreclosure

Even if your lender began the foreclosure before you filed for bankruptcy and set the auction or sale date, the automatic stay puts it on pause. Unlike debt consolidation, you can bundle past due mortgage payments into a Chapter 13 repayment plan in Rancho Cucamonga. This gives you three to five years to pay back the arrearages. If you have a second or subsequent mortgage, you may be able to have them removed. Depending on your situation the court may discharge them at end of your repayment period with any other remaining, eligible debt.

Improve Your Budgeting Skills

Your bankruptcy petition will contain income and expenses schedules which can assist you as a snapshot of your monthly budget and finances. Chapter 13 only stays on your credit for seven years versus the ten years for chapter 7 bankruptcy, and you can begin rebuilding your credit almost immediately upon filing chapter 13.

Ask a Rancho Cucamonga Lawyer About the Advantages of Chapter 13 Bankruptcy Over Debt Consolidation

Deciding to take the step and file Chapter 13 takes consideration and weighing your options. I have helped clients in Rancho Cucamonga and throughout the state determine whether bankruptcy or another type of debt relief is best for them. Call me today to discuss the benefits of Chapter 13 bankruptcy over debt consolidation in Rancho Cucamonga. I can help you create a budget you can stick to; one that allows you to successfully complete your wage earners repayment plan and get out of debt. Call me to schedule a free consultation and start rebuilding your credit today.

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