Debt Consolidation Vs. Chapter 13 Bankruptcy: Which Is Right For Me?

Are you buried in debt? Debt can stack up fast, especially with so many people depending on credit to help them survive during hard economic times. More and more borrowers are choosing to either file Chapter 13 bankruptcy proceedings or consolidate their debts to relieve some of the financial stress and burdens that are upon them. But which one is right for you and for your personal situation?What Is The Difference Between The Two?Both debt consolidation and Chapter 13 bankruptcy are useful for restructuring debt in order to come to more manageable arrangements to repay your creditors. There are substantial differences between the two, however. With debt consolidation, all of your debt is typically restructured into one loan that encompasses everything you owe - you then repay your new lender on a monthly basis, most typically with reduced interest and smaller payments as opposed to what you were paying to a stack of multiple lenders previously. On the other hand, Chapter 13 bankruptcy restructures your debt and gives you a period of three to five years to completely repay your lenders - but has many added protections for your as a borrower. Let us take a more in depth look at both options.Debt Consolidation To Avoid BankruptcyDebt consolidation, in its simplest form, allows you to take the balances that are owed to multiple creditors, roll them into one big balance, and then refinance with a (usually) new lender. You can include everything you owe in your debt consolidation, or just pick and choose the debts you want to consolidate. In most instances, your debt consolidation loan can include your mortgage, car payments, student loans, credit cards, and other types of debts. Your interest rate will be (typically) lower on your debt consolidation loan and you will have additional time to pay off your lenders.Chapter 13 Bankruptcy ProtectionChapter 13 bankruptcy is mandated under the Federal Bankruptcy Code of the United States which governs all bankruptcy stipulations and actions. All of your assets are protected once you file bankruptcy until the bankruptcy is ruled upon and decided in bankruptcy court. Bankruptcy gives you the power of automatic stay - which keeps creditors from harassing you, halts any foreclosure proceedings and repossessions, and puts a hold on any collections judgments or wage garnishments that are in place against you. Typical restructuring under Chapter 13 allows for you to repay your creditors and keep your assets.Which Is Best?If your financial problems are in their infancy - and you have not moved towards foreclosure or repossession of your property, debt consolidation is the best answer for you. Debt consolidation allows you to refinance what you owe and has much less stigma than filing bankruptcy protection can in regards to your future potential to borrow money or receive credit. However, if your finances are in a total wreck and you have received notice of foreclosure or if a garnishment has been ordered against your wages, your best answer may be to file for Chapter 13 bankruptcy protection. As with any matter as important as your decision to file bankruptcy, always check with an attorney before deciding which option would best serve your needs.For those borrowers who can benefit most from debt consolidation, the Internet is a great source to find lenders who specialize in debt consultation. These lenders can help you regain your financial freedom while protecting your borrowing reputation.