Bankruptcy Blog

Why Bankruptcy is Better Than Debt Consolidation

I often get the question: “Why shouldn’t I just do debt consolidation, and avoid bankruptcy altogether?”

My first reaction is: “Bankruptcy is an amazing tool available to us; we shouldn’t be AVOIDING using it.” That being said, I’m not going to pretend I don’t understand the natural tendencies. But let me explain the MANY advantages of both chapter 7 and chapter 13 bankruptcy vs. Debt Consolidation.

1)     Cancellation of Debt

Chapter 7 and chapter 13 bankruptcy discharge your debts and leave no trace. They are eliminated, wiped out, erased, gone forever, reset to $0.00. Whereas a debt consolidation scheme might leave you with cancellation of debt income to report on your taxes next year. What is Cancelation of debt? When a company forgives debt you owe through a settlement like a debt consolidation, they can send you a 1099-C “cancellation of debt” tax form that you must treat as income and pay taxes on next year. This can leave you with a sizable tax bill in the years after a debt consolidation. Avoid the fear and headache of Cancellation of Debt Income by choosing the much better option of bankruptcy.

2)     Bankruptcy is much quicker

A chapter 7 bankruptcy is often completed in 4-5 months, from beginning to end. Whereas a debt consolidation often takes years and years of repayments to complete, if it’s even successful in the end.

3)     Bankruptcy is more certain

A Chapter 7 and/or chapter 13 bankruptcy have the power of the federal courts. The entire process is governed by the federal judicial system with laws, judges, trustees, and lawyers. Whereas a debt consolidation is a series of private agreements between often-sneaky creditors and faceless debt consolidation representatives.

4)     Bankruptcy is Cheaper

A chapter 7 bankruptcy will eliminate all your dischargeable debts to $0.00 and only costs a flat attorney fee of less $1K (+ court costs). Whereas a debt consolidation often costs thousands to administer, plus the high monthly payment on your debt!

To put it simply, I believe Bankruptcy is always the best option when compared to debt consolidation. Bankruptcy is cheaper, more certain, quicker, and does not involve the scary idea of Cancellation of Debt income when it’s over.

If you have any questions about how any of this works, please call me or text me @ 740-815-1114.

-Lucas Ruffing
Bankruptcy Attorney

Lucas Ruffing