Debt Relief Cautions

: Chris Lee Law Firm

  Filed under: Debt

debt-consolidationDebt relief options come in many forms, each bringing their own risks and benefits. Options for finding debt relief cover everything from a simple debt management plan all the way to filing for bankruptcy. Some of the more popular options, such as a debt settlement offer or debt consolidation loan may seem like a good idea, but chances are there might be a better way to get out of debt.

Details Are Crucial

A debt settlement offer can be appealing to some because it promises to erase a higher debt total in favor for repayment on a lower one. While these offers can be negotiated directly with a lender, the debtor could also be left with some concerning consequences. A Chapter 7 bankruptcy could be viewed as the equivalent to a debt settlement offer with one exception, it is a legal process that is controlled by the court and not left up to the creditor to decide. This is an important detail when looking to erase or eliminate debts that one can no longer afford to repay. Having the case handled through the court system allows for greater protection of the debtor and less risk of adverse consequences while the debts are being settled.

Debt consolidation is also a commonly sought after option when a debtor is working to repay their debts, but needs a little extra flexibility in doing so. The problem with debt consolidation is that it is essentially a loan. The third party agrees to pay the debtor’s debts to all creditors in exchange for the debtor paying them repayment on the bigger loan. Again, problems can arise for the debtor when the loan carries high interest rates and could even take longer to repay. A Chapter 13 bankruptcy could be viewed as the legal equivalent to debt consolidation. However, the important part of a Chapter 13 bankruptcy is that it does not involve a new loan. The debtor is allowed to make a single monthly payment, but that payment is divided among the multiple creditors by the assigned Trustee. Filing a Chapter 13 instead of consolidating debts outside of bankruptcy offers greater protection from creditors and any risks associated with debt repayment.

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