Bankruptcy Vs Debt Consolidation

Good times and bad times come in turns in everyone's life

. We never stop and we are in a constant quest towards this journey called Life. Especially during a recession, our hopes get fonder and fonder. Many businesses close down and there are numerous cases of bankruptcy. Bankruptcy is the process by which an individual or a business entity finds itself in the position of not being able to pay its creditors. Such process is sanctioned by the court of law. Debtors usually file a 'Voluntary Bankruptcy' to stop creditors from demanding payment. Sometimes the creditors file an 'Involuntary Bankruptcy' to at least recover a portion of funds owed or can initiate a restructuring program.

There can be mayhem when people do not find enough financial resources to recover from economic turmoil. Nothing stops, neither expenses nor hikes in prices, but what actually does stop or gets reduced drastically is one's source of income. A few people can get financial assistance from banks that they use to payoff their loans or credit cards through a process called Debt Consolidation. This process enables an individual or an entity to take out one single loan and pay off multiple or miscellaneous loans. Many people find it convenient to service one loan rather than paying for several loans.

Bankruptcy vs Debt Consolidation; The major difference between the two of them is paying off the creditors. In bankruptcy there is strong possibility that a creditor won't be paid off entirely, if at all. But in debt consolidation the creditor(s) can be paid off entirely or just the recoverable amount or any amount agreed to between the two parties and sanctioned by the court. There is no concept of interest in bankruptcy but while consolidating debts, the individual or the business might have to pay lower interest rates, however, for a longer period of time. There is nothing that an individual possesses as personal property when he files for bankruptcy. But the individual can consolidate his debts by using his property as collateral. Here, the individual gets a secured loan for a lesser interest rate.

In bankruptcy there is something called 'Debt Restructuring' which is an option agreed to by the creditors. They negotiate on the delinquent debts and offer a fixed time to the debtors to liquidate. This happens in the earlier stages or chapters of bankruptcy. Debt consolidation is usually advised for people who have to pay off their huge credit card bills. These individuals or businesses do not opt to file for bankruptcy. The lending groups help the individuals while the attorneys help them file a petition for bankruptcy.

Bankruptcy or Debt Consolidation, they are no doubt financial solutions but the hope gets stronger with time and many of us await economic stability and financial freedom, the sooner the better.

by: Dennis King

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