Knowing the Key Differences Between Chapter 13 Bankruptcy and Debt Consolidation Loans
There is one similarity between filing for Chapter 13 Bankruptcy and consolidating your multiple debts. They work under the same concept, i.e. restructuring the debt over a period according to the agreed schedule. The debtors can become debt free once they complete their repayment plans. Seriously speaking, these 2 financial options have many obvious differences and they work differently for people who have different financial requirements.
Let me share with you some important facts:
· When the debtors have serious debt problems and they fail to repay their debts, they can choose to file for Chapter 13 Bankruptcy. If they are qualified, they will be required by the court to repay the debt according to a fixed repayment plan. During this period, the debtors can’t be charged any interest on their existing debts provided they meet all the required payments. At the end of the bankruptcy period, the debt will be discharged and the debtors will become debt free.
· We have to accept the fact that not everyone is qualified to declare bankruptcy. For debtors who fail to do so, they are advised to consolidate all their debts into one single loan with lower interest rate. The process of searching for loan providers is done by the debtors themselves. They have the freedom to choose which financial institutions they prefer. They just need to be smart in getting the best deal. Besides, they need to ensure that the monthly repayment amount must be within their ability.
· In terms of the effects of credit rating, both financial solutions lead the debtors to different results. Consolidating debts will lower the credit rating of a person by a few points only. However, for people who file bankruptcy, this negative item will stay on their credit files for 10 years.
Last but not the least; you are reminded to evaluate your own needs carefully before making your decision.
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