Debt Consolidation Vs. Bankruptcy

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Debt Consolidation Vs. Bankruptcy

Although many people explore both these options when seeking solutions to their debt problems, the two are very different things. Further, since the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which established a means test that has to be taken into account before a bankruptcy court will accept a petition, most people that can afford debt consolidation are not qualified to file for Chapter 7 bankruptcy relief. In so many words, if debt consolidation is an option for you, then bankruptcy Chapter 7 bankruptcy probably is not, although this may not be the case with Chapter 13 bankruptcy.

Debt consolidation usually takes one of two forms: a hard money loan or balance transfers. A hard money loan is essentially a new loan that you take out that is enough to cover all of your existing debts that you then repay back to the lender through agreed upon terms. A debt consolidation loan can make life much easier, can lead to lower interest rates, and may include some debt settlement done by the lender. However, in order to qualify you have to be in pretty good financial shape and usually you have to substantial capital, like home equity as well. This option simply is not available to most in an extremely back financial situation.

Balance transfers, where you shift all your credit card balances over to yet another card for a temporary reduction in interest rates or lower monthly minimum payments has long been recognized as slippery slope that usually does not actually fix anything. Further, now that the era of “easy credit” is over, the chances are pretty good that if you are already drowning in debt you would not qualify for a new line of credit large enough to consolidate all of your existing credit card debt.

Chapter 7 bankruptcy, on the other hand, is a measure taken more or less as a last resort. In order to even file your petition for Chapter 7 you have to have already gone through credit counseling which should have explored all the other options available to you. If all else fails and Chapter 7 bankruptcy is the right path to take then chance are you would not have qualified for any sort of debt consolidation solution anyway.


Bankruptcy and debt consolidation can get very complicated. Speaking to a bankruptcy attorney can really make sense to explore your options. Learn more and get Long Beach Bankruptcy Help at http://www.consumerbankruptcyattorney.com.
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