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Choosing between debt consolidation or bankruptcy

Ohio consumers who are struggling with overwhelming financial obligations may wonder whether it makes better sense for them to attempt a debt consolidation, enter into a debt management plan or simply to file for bankruptcy. The answer to that question largely depends on the individual situation of the debtor.

The first important thing is for people to understand the difference between debt consolidation and debt management. While debt consolidation involves opening a new line of credit under which all of the existing debts are then rolled into, a debt management plan is instead normally administered by a credit counseling agency. Debt management plans do not involve new credit lines, and instead, a counselor will work with the creditors to secure lower interest rates while also disbursing a single payment each month among them.

If a person has good credit and also has the ability to make payments under a debt management plan, that may be a good option. If the debtor is truly unable to afford the payments, however, bankruptcy may be a better choice. The other consideration people should keep in mind is that any settlements obtained with creditors in which certain amounts are canceled or forgiven may subject the debtor to tax liability. This is not the case, however, with debts that are discharged in bankruptcy.

Personal bankruptcy is sometimes the best option. Through filing for bankruptcy, people may be able to obtain debt relief so they can move on with their lives. People who are struggling with meeting their obligations may want to consult with a bankruptcy attorney who can assist clients in making a critical evaluation of their financial situation. If bankruptcy is determined to be one of the possible solutions, the attorney will explain the eligibility requirements.

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