Basically, a debt consolidation program allows a debtor to combine the total outstanding balances through a single payment method. Instead of making numerous and multiple payments on the credit card debts, one is able to make a single and low interest payment. This system may also help the debtor to organize the debts and to increase the credit score more conveniently. While there are numerous consumers who consider the debt consolidation method as a one stop solution to their debt problems; there are others who feel that, a debt consolidation program does not get to the essence of debts. However, there can be several occasions when a debtor might not qualify for a debt consolidation program; those who do not can think of the bankruptcy option particularly Chapter 13. Even by filing Chapter 13, one is able to consolidate huge debts, but the procedure may differ from the one that is used in a debt consolidation program. Let us study the differences and the benefits of both the processes:
Basically, Chapter 13 is a type of debt consolidation; since it is backed by a Federal Bankruptcy Code, a debtor can expect to get better advantages in this procedure.
As soon as Chapter 13 is filed, an automatic stay comes into effect. It is almost like a court based instruction which will prevent most of the debt collection efforts against the debtor. On the other hand, a debt consolidation method is not as powerful. Chapter 13 will stop such actions as a wage garnishment or a foreclosure which is forced on the debtor by the creditors.
While Chapter 13 allows each one of the debts to be combined into a monthly payment e.g. taxes, child support, car payments and mortgage. However, a debt consolidation program will allow the debtor to consolidate specific debts.
In a debt consolidation program, the creditors can only consider lowering the interest and reducing the balances; but in Chapter 13, if certain qualifications are met, a debtor can eliminate up to 90% of the debts. As a result of the reduction in the principal amount, the debts can be eliminated more quickly in chapter 13.
As far as Chapter 13 is concerned, a debtor will be obligated by court to represent the case in the best interest of the debtor; unlike debt consolidation, which is a privately run method, Chapter 13 is backed by legal requirements.
Chapter 13 is also convenient as it tackles the significant debts at first; but a debt consolidation company can penalize the debtors for delaying the unsecured debts.
Therefore Chapter 13 can be considered to be a better option than a debt consolidation program; however, there is a marked difference between the two, and the debtors should understand both the options before getting on with their debt issues.