BANKRUPTCY VS. CONSOLIDATION

You may have heard of an alternative to bankruptcy called debt consolidation. While debt consolidation may be an option for some debtors, in most cases it only benefits the loan consolidation firm. Debtors often end up paying thousands of dollars in fees, while only going further into debt. The only sure way to discharge debt is through bankruptcy.

At the Orantes Law Firm in Los Angeles, we offer a free initial consultation to discuss your debt problems and give you honest answers about your options. You will have no obligation to hire us following this consultation.

In debt consolidation, you consolidate your debts into one monthly payment, which you make to the debt consolidation firm. After you make enough payments to cover the debt consolidation company’s fees, the company will negotiate with your creditors (usually credit card companies) to accept less than the full amount you owe.

What the debt consolidation company usually does not tell you is this:

• The debt consolidation firm collects its fees first, before making any payments to your creditors. Meanwhile, interest and fees will continue to mount up on your credit card debt.

• Creditors are not required to accept the payment plan. Individual creditors may sue you instead. Once a creditor sues you, the plan is over.

• If a creditor does agree to accept less than the full amount you owe, it will report the canceled debt to the IRS and you will owe taxes on it.

• When you file Chapter 7 bankruptcy, you can discharge 100 percent of unsecured debt such as credit card bills. If you earn too much money to file Chapter 7 bankruptcy, you can still obtain debt relief by filing Chapter 13 bankruptcy.

• When you file bankruptcy, you are protected by the automatic stay. Creditors cannot sue you.

• Debt discharged from bankruptcy is tax-free.