What is the difference between bill consolidation and bankruptcy?
Simply put, bill consolidation means combining all of our outstanding debts and loans into one single bill consolidation loan. Ideally, the interest rate of this resulting bill consolidation loan will be lower than at least some of your original debts and loans, giving you the opportunity to make one single payment at a reasonable interest rate. Bankruptcy on the other hand is a process designed to eliminate existing debt or repay debts under governmental protection. There are two basic types of bankruptcy – Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 bankruptcy is also knows as a “liquidation” style bankruptcy – a process in which property and other assets are liquidated, or sold, in order to pay down your debt. Chapter 13 bankruptcy, otherwise known as “reorganization” or “wage earner” bankruptcy, is granted when a person still has some means of income. The person filing chapter 13 bankruptcy must use a portion of their income to make monthly payments over three to five years in order to pay all or some of the debt.
Comparing the two methods of debt management and repayment, both require a person to continue paying their debt. With bill consolidation and both types of bankruptcy, it’s possible that some of the outstanding debt will be removed, but it’s important to note that neither of these options are a “get out of jail free” card. Which method you choose to help manage your debt and your finances will depend heavily on your own individual circumstances.
A closer look at bill consolidation
People who choose bill consolidation as their option to improve their financial position don’t need to be a certain age. You must, however, be able to qualify for a loan, which sometimes can depend on age and income. If you do qualify for bill consolidation, you can ease the stress of your major debts, including auto, school and medical bills, amongst others. It’s important to keep in mind that while bill consolidation makes paying off your debt easier, using one payment instead of many, you still are obligated to pay off that debt. Consolidating your bills doesn’t make them disappear altogether. The good news is that most bill consolidation companies help negotiate a better interest rate for the loan you end up with and you’ll a dramatic decrease if not end to harassing collection calls, putting your mind at ease.
Bill consolidation doesn’t affect your credit score as much as bankruptcy does. In fact, since your credit score is related to loan payment terms, as you pay off your bill consolidation loan, your credit score could very well improve.
A closer look at bankruptcy
Like bill consolidation, there are no specific age restrictions in the bankruptcy code. You do need to meet the following basic requirements in order to be eligible:
Live and have residence or a place of business in the United States.
Pass a means test to file for Chapter 7
Get credit counseling
For Chapter 7, you must not have been granted a discharge within the last 6 years for another Chapter 7 filing or you may not have completed a Chapter 13 plan within the last 6 years.
For Chapter 13 bankruptcy you must have proof of regular income and have less than $750,000 in secured debt and less than $250,000 in unsecured debt.
With any major financial restructuring, talking to a debt professional is essential to completely understand the terms and conditions of your restructuring.
Bankruptcy can help you with mortgages, credit card bills, and medical bills. Some loans, like school loans, cannot be automatically dropped when you file bankruptcy. In fact, it’s important to remember that filing bankruptcy should be a measure of last resort.
In the short term, bankruptcy can deal a pretty big blow to your credit score, and you could be looking at a score in the 400-500 range. However, it’s been shown that over time, bankruptcy might be able to improve your credit score, if filed correctly.
Chapter 7 bankruptcy is also knows as a “liquidation” style bankruptcy – a process in which property and other assets are liquidated, or sold, in order to pay down your debt. Chapter 13 bankruptcy, otherwise known as “reorganization” or “wage earner” bankruptcy, is granted when a person still has some means of income. The person filing chapter 13 bankruptcy must use a portion of their income to make monthly payments over three to five years in order to pay all or some of the debt.
People who choose bill consolidation as their option to improve their financial position don’t need to be a certain age. You must, however, be able to qualify for a loan, which sometimes can depend on age and income. If you do qualify for bill consolidation, you can ease the stress of your major debts, including auto, school and medical bills, amongst others. It’s important to keep in mind that while bill consolidation makes paying off your debt easier, using one payment instead of many, you still are obligated to pay off that debt. Consolidating your bills doesn’t make them disappear altogether. The good news is that most bill consolidation companies help negotiate a better interest rate for the loan you end up with and you’ll a dramatic decrease if not end to harassing collection calls, putting your mind at ease.