Is Filing for Bankruptcy a Better Option Than Debt Consolidation in Franklin County, Ohio?

Written By: Katy Brewer & Brian Wood

Ohio residents who find themselves struggling to cope with unmanageable debt often worry that filing for Bankruptcy will harm their credit and make borrowing in the future much more difficult. For these Ohioans, debt settlement or debt consolidation may seem like an attractive alternative to filing Chapter 7 or Chapter 13 Bankruptcy. Debt consolidation or Debt Settlement often is advertised as the companies being able to combine debt into a more manageable payment or convince creditors to accept less than what is owed.

Debt Consolidation

Debt consolidation can be a lengthy process while the debt consolidation company gathers fees and payments to approach creditors with settlement offers. During this time, no monthly payments are being made. Credit scores decrease when monthly payments are not made, and delinquent accounts may be sent to collection agencies. This means that Ohioans who work with debt consolidation companies can see their credit ratings fall and are often harassed by debt collectors daily.

Creditors are under no obligation to accept settlement offers. A creditor could instead reject the settlement offer, garnish the borrower’s wages or take legal action to obtain a judgement. If a creditor does accept the settlement offer, there could be unanticipated tax consequences with various agencies such as the Internal Revenue Service. Garnishments, judgements and tax liability can be the unintended consequences of debt consolidation.

How Bankruptcy Is Different from Debt Consolidation

Bankruptcy is normally preferable to debt consolidation because it takes the risk out of escaping unmanageable financial situations. Creditors do not have to agree to accept less than they are owed when individuals file Chapter 7 or Chapter 13 petitions, and they have no influence over the bankruptcy process. Filing for bankruptcy also protects personal assets from creditors, and people who file for bankruptcy do not have to pay taxes on debts that are discharged. Another advantage of filing for bankruptcy is the automatic stay that is issued as soon as the paperwork is filed. This court order puts and immediate end to harassment from creditors and stops all debt-related lawsuits and garnishments.

Debt Relief and a Fresh Start

The services offered by debt consolidation companies can appear attractive to people with financial problems, but the promises made by these companies often fail to materialize. Bankruptcy gives individuals a way to escape overwhelming debt, and it offers them an opportunity to make a fresh start. If you are considering both options, our attorneys at Wood & Brewer can arrange for a free initial consultation to assist you in discussing your options to break free from the debt. Please give us a call today!