The Difference Between Chapter 13 Bankruptcy & Debt Consolidation Programs

Many people, who are overwhelmed with debt, think Debt Consolidation Programs are better than Chapter 13 Bankruptcy. They could not be more wrong. Here are some major reasons why filing Chapter 13 Bankruptcy is better than Debt Consolidation Programs:

1. You Usually Pay Back Less Money in Chapter 13 Bankruptcy:

In Chapter 13, the Bankruptcy Code provides you only have to pay back what you can afford after deducting reasonable and necessary expenses from your income. If you have assets with substantial equity, you can usually keep the property but you must pay back the liquidation value of that property. The liquidation amount is what a Chapter 7 Trustee would recover by selling the property for the benefit of creditors. After deducting exemptions and the expenses the Chapter 7 Trustee would incur, the amount a person pays back in Chapter 13 is usually significantly less than the equity in the property. This can save you a tremendous amount of money over what you will pay in a Debtor Consolidation Program.

2. Creditor MUST Accept the Chapter 13 Plan:

Provided you are paying all of your Disposable Monthly Income into the Plan and meet the Liquidation Test, your Creditors can be forced to accept your proposed Chapter 13 Plan. In a Debt Consolidation Program, each creditor can accept or reject your proposal for any reason. This is one of the main reasons Debt Consolidation Programs usually fail. As the Federal Trade Commission states, Debt Consolidation Programs have numerous RISKS.

3. Chapter 13 Bankruptcy Provides An Automatic Stay:

When you file a Chapter 13 Bankruptcy Case, an Injunction, called the Automatic Stay, prevents creditors from continuing collection activities. This stops garnishments, foreclosures, judgments, utility shutoffs and you can even get your car back after it has been repossessed provided it hasn't been sold. In a Debt Consolidation Program, once you become delinquent on payments to a creditor, they can take legal action at any time. The Automatic Stay, by itself, makes Chapter 13 Bankruptcy superior to Debt Consolidation Programs in most cases.

4. Chapter 13 Bankruptcy is Flexible and Let's You Pick and Choose What Is Best For You:

In Chapter 13 Bankruptcy, there is so much flexibility to build a Chapter 13 Plan which is tailored to you and your situation. In a Debt Consolidation Program, the Creditors get to tell you what they are willing to accept and you must conform to their demands. Our essay on "The Benefits of Chapter 13" show you some of the may ways Chapter 13 Bankruptcy can help you.

5. There Are No Tax Consequences in Chapter 13 Bankruptcy:

At the end of your Chapter 13 Plan, your unpaid dischargeable debts go away. Moreover, you don't pay income taxes on the discharged debts. In a Debt Consolidation Program, the forgiven debt you don't pay will be counted as income on a Tax Form 1099 the Creditor will send to you and the IRS. That means the forgiven debt constitutes taxable income and, depending on the amount forgiven and your other income, can result in an enormous tax bill.

6. Chapter 13 Will Improve Your Credit:

Chapter 13 stops interest and late fees and the accounts on your Credit Report show as being included in your Bankruptcy Case. In just 7 years after the date your Chapter 13 case is filed, both the Chapter 13 Bankruptcy case and the negative accounts on your Credit Report will go away. Moreover, your Credit will begin to improve once you file your Chapter 13 Bankruptcy Case.

In a Debt Consolidation Program, the negative accounts will continue to appear as late payments on your Credit Report and will remain on your Credit Report for 7 years from the date of your last payment in the Debt Consolidation Program. Depending on the length of the Debt Consolidation Program, this could be 12 years or more after you start the program. Finally, your credit will continue to deteriorate while you are in the Debt Consolidation Program.

Restore Your Financial Freedom and GET YOUR LIFE BACK!


If you are facing financial problems, you need to consider the options available to you in Bankruptcy. Please call (513) 528-0200 or send an email to You can also contact us through our website.

I look forward to helping you.

Greg Wetherall

Cincinnati Bankruptcy Lawyer