You may have seen or heard commercials on the TV or radio touting debt consolidation through one of many for profit companies as a desirable alternative to filing for bankruptcy. However, what these companies will not tell you, is that there are many advantages to filing bankruptcy compared to using a debt consolidation company that you should be aware of before making a decision.
1. When you file a bankruptcy case, you are immediately protected from your creditors. Once you file bankruptcy, creditors are prohibited from calling or writing you to demand payment. Debt collectors know this, and they abide by it. Debt consolidation companies will offer you no such protection. While they may be working to settle your debts for less than you owe, your creditors are free to take any legal action to enforce their claim, including garnishing wages.
2. You will pay less with bankruptcy. Bankruptcy eliminates most types of debt, including credit cards, bills, payday loans, etc. There is no set cost or fee for filing personal bankruptcy, though the typical minimum fee is $1,800 paid in nine monthly instalments of $200 each. The maximum amount you pay is based upon your income and ability to pay. The surplus income formula used to calculate these payments is legislated under the Bankruptcy Insolvency Act and therefore the calculated payment amounts will be the same for all trustees.
Debt consolidation companies have little bargaining power in dealing with creditors. If you owe the money, they have the right to all of it, and generally don’t care who else you owe or how much other creditors are demanding of you. As such, they are unlikely to agree to as little as 10% of the amount owed. Often, debt consolidation companies are unable to get reductions of more than of 30-50% of the balance owed.
3. When you file bankruptcy, the interest and penalties stop accruing on your debt.
While you are in a debt consolidation plan through a private company, normal interest and penalties continue to add up, increasing your debt. Debt consolidation plans can sometimes last several years before claims are finally settled, meaning potentially thousands of dollars of additional debt. If the debt consolidation plan is unsuccessful (and they often are) you may end up in a worse position than when you started.
If you are considering debt consolidation, do your research. If you are undecided as to which option is best for you, call us for a free, no-obligation consultation. We will review your options with you and guide you in the direction hat best suits your situation.