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Pros and cons: bankruptcy versus debt consolidation plan

When a person's unmanageable debt load reaches a critical point, constant harassment, lawsuits, judgments and even executions are the natural order of things. Arkansas citizens suffering in that circular nightmare, or who may be getting close to it, may find themselves trying to choose between a debt consolidation remedy and filing a bankruptcy. Those are really the only two options that may stop the creditors' onslaught, other than winning the lottery big-time and paying everything off.

As a general rule, debt consolidation through a private company will only work for persons with a relatively small debt load. This means only a few creditors and account balances not already pummeled by runaway interest, late fees and other penalties. When those penalties are present, it also usually signifies numerous additional credit accounts opened by struggling debtors trying in good faith to "rob Peter to pay Paul."

If the debtor's accounts have some of the foregoing ominous features, then it is unlikely that a consolidated payment plan will work. That is because the debtor is already strapped to the limits of endurance. Consolidating debts still results in a harsh and prohibitive monthly payment, and almost never succeeds in substantially reducing the total balance due.

The debtor may try such a plan by scraping, sacrificing and living under an oppressive budget. But the family may be unable to buy enough adequate food, clothing, gas, utilities and other necessities, to live a comfortable life.  Even one missed payment on a consolidation plan results in a new wave of harassing communications and harsh collection actions.

With all facts considered, debt consolidation doesn't very often match up to the "fresh start" bankruptcy alternative. Chapter 7 generally means the quick and permanent elimination of one's unsecured bills within just a few months. The bankruptcy is really the only option that works in Arkansas and elsewhere for an individual or married couple who must stop creditor harassment in connection with an unmanageably high overload of debt.

Source: The Huffington Post, "Debt Consolidation or Bankruptcy? Choose Wisely the First Time", David Goehst, Sept. 26, 2014

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