Bankruptcy Vs. Debt Consolidation Companies In Texas

Bankruptcy can be a frightening idea for many people. When faced with financial difficulties some individuals would rather find alternative solutions, such as working with a debt consolidation company. However, it is important for consumers to fully understand how these companies work as well as the potential downsides.

What Does A Debt Consolidation Company Do?

A debt consolidation company works on your behalf to negotiate lower repayments or extended repayment terms with your creditors. Most likely, you will pay the debt consolidation company a set amount of money each month, and after they deduct their fees, they will repay your creditors according to the terms they have arranged. While this may sound like a good solution to your debt problems, there are numerous disadvantages that debt consolidation companies will not tell you about.

The potential problems of working with a debt consolidation company:

  • You are paying for a service you could probably do yourself.
  • Debt consolidation companies have little leverage to negotiate better terms with your creditors, and not all creditors will agree to new terms.
  • Creditors are not legally bound to the repayment terms arranged by a debt consolidation company. This means you are not legally protected when working with a debt consolidation company and creditors can still sue you at any time.
  • Working with a debt negotiation company can be more expensive than a bankruptcy lawyer. In addition, any debt forgiven through terms arranged by these companies can be treated as taxable income by the IRS.
  • Debt consolidation companies are often "mills." This means you may not have a dedicated advocate working for your best interests. There may be no one to answer your questions when needed and to help you make the best decisions.

Is Bankruptcy A Better Option Than Debt Consolidation?

In the great majority of cases, bankruptcy will be a better option than working with a debt consolidation company. Bankruptcy is often less expensive and most importantly, creditors are legally bound to accept the terms of the bankruptcy. In Chapter 7, this is often a full discharge of your debt. In Chapter 13, this is an affordable three- to five-year repayment plan. With bankruptcy, you are legally protected from further collection attempts after your debt is discharged in either a Chapter 7 or Chapter 13 bankruptcy.

To learn more about all of your debt relief options, contact Gipson, Norman & Root. We understand this is a stressful and confusing time in your life. We will take the time to explain the many ways we can help you start fresh. Sometimes the answer is bankruptcy, but sometimes not. We will give you all of the information you need to make the right decision for yourself.

Contact Our Galveston, Texas, Bankruptcy Lawyer

Contact our office at 281-823-7016 or 888-512-6044 to schedule a free 30-minute consultation with our experienced attorney.

Gipson, Norman & Root is a debt relief agency. We help people file for bankruptcy under the Bankruptcy Code.