When you decide to seek the help of a Licensed Insolvency Trustee to manage accumulating debt, you will be offered a number of debt management solutions, with the two most common being filing for bankruptcy or debt consolidation, or proposal, services. Both options offer significant benefits, but which one is right for your situation?
Consolidation vs. bankruptcy for debt management
With debt consolidation, multiple unsecured debts with different interest rates are combined into one single payment usually over a 5 year period. So, instead of making several monthly payments to separate creditors, you make only one monthly payment that is based on your situation and affordability.
With bankruptcy, on the other hand, the goal is to eliminate various debts, or block creditors from collecting payments, so that you can regain control of your finances while under the protection of the federal government.
Reasons to consider debt consolidation include:
Lower or no interest payments: You will be able to attain manageable monthly payments at a much lower interest rate, which leaves you with more income to meet other important needs.
Simplified debt management: It is easier and more convenient to make a single monthly payment to one creditor, rather than make multiple payments with varied interest rates to different creditors.
The biggest advantage of bankruptcy is that it gives you a clean slate. You may be required to liquidate some assets and re-organise your finances in order to pay off your debts within a given period. However, during this time you will not be harassed with calls from collection agencies, or bills from creditors. Bankruptcy offers other benefits, including:
Protection from creditors: The legal process prohibits most creditors from trying to collect from you. This means no harassing phone calls, garnishments, foreclosures, repossessions, or lawsuits.
A fresh start: You can completely eliminate unsecured debts such as credit cards and medical bills.
Which option is right for you?
It’s recommended that you seek help from a Licensed Insolvency Trustee to deal with debt, they can explain all of your options and help you determine, such as when you risk garnishment or foreclosure, in which case bankruptcy or a consolidation can be the better option.