Individuals who feel stressed and overwhelmed by their debt situation may want the support of a professional through debt management or consolidation to create what seems like a realistic payment plan. Both debt consolidation and debt management can actually worsen a debtor’s financial situation and result in longer repayment periods, higher total costs, and the risk of accumulating more debt.
A Madison debt management lawyer from our firm can evaluate your financial situation and explain various legal debt solutions available. The skilled bankruptcy attorneys at Gillman Capone can explain the implications of the various choices at your disposal and help you pursue a potential fresh financial start.
Debt consolidation is a financial strategy that combines multiple unsecured debts, like credit cards, into a single new loan or payment plan. A debt management plan is a structured repayment program managed by a nonprofit credit counseling agency. Theoretically, these solutions can simplify a debtor’s financial life and save money for those with a manageable debt load. The unfortunate reality is that this approach often traps those with significant financial problems in a longer, more costly repayment cycle.
To secure the most favorable interest rates on a debt consolidation loan, you generally need a good or excellent credit score. If your credit has already been damaged by missed payments, you may not qualify for a better rate than you are currently paying. Lenders may charge upfront fees like origination or balance transfer fees that eat into any potential savings.
Even with a lower monthly payment, a longer repayment term could mean paying more in total interest over the life of the loan. Unlike bankruptcy, debt consolidation does not provide legal protection from creditor actions. You remain vulnerable to lawsuits, wage garnishments, and collection calls. Creditors are not obligated to participate in a debt consolidation plan either, which means some may still pursue collection actions.
Bankruptcy is often a better option if you have an unmanageable amount of debt and other options have failed. It provides significant legal protection and a path to a true financial fresh start that debt consolidation or management plans cannot. A Madison attorney can evaluate the best options to manage your debt and help you understand what your path forward to financial freedom could look like.
Our experienced Madison attorneys can help you determine if filing for bankruptcy could be a viable alternative to debt management for those who have overwhelming debt.
While often associated with large corporations, Chapter 11 is also an alternative for individuals with complex finances or debt that exceeds the limits for Chapter 13. For companies, Chapter 11 is a reorganization process that allows the business to continue operating while it repays creditors under a court-approved plan. This is designed to preserve the business as a going concern, which is more valuable than its assets in liquidation.
Chapter 11 addresses a wide range of debts and provides an automatic stay against creditor actions. Unlike debt consolidation, it can force a reorganization plan on dissenting creditors if the plan is fair.
Individuals whose secured and unsecured debt totals are too high to qualify for Chapter 13 may instead file Chapter 11. It allows them to reorganize their finances and repay creditors over a set period.
Chapter 13 is a reorganization bankruptcy for individuals with a regular income. The court approves a three-to-five-year repayment plan, and creditors are legally required to comply. Creditors generally receive no interest on unsecured debts under the plan.
The filing triggers an automatic stay, a powerful court order that immediately stops collection activities, including lawsuits, wage garnishments, repossessions, and foreclosures. If you qualify for a Chapter 13 filing, you may only have to pay a fraction of your unsecured debt (like credit card or medical bills), with the rest being discharged at the end of the plan.
A Chapter 13 bankruptcy helps protect your assets, including your home and car, especially if you have fallen behind on payments.
A Madison debt management lawyer from Gillman Capone can review your finances to help you understand all your debt relief options. If your situation is severe, our legal team can determine if filing for bankruptcy is the best option for you and guide you through the process. Give us a call today for a free case evaluation about your situation in your one-on-one case review.
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