When you have debt, what to do: Debt Consolidation vs Bankruptcy

is social security considered disposable income in chapter 7?

If money is tight for you, and you’re struggling with your debt, you may be looking to take action.  Bankruptcy, it seems, is the “last resort” for people (which I don’t think it should be – bankruptcy can be used strategically).  You see commercials for debt consolidation programs that offer low monthly payments to get you back on track.  So, naturally you may be wondering – when dealing with debt, which is the way to go: debt consolidation vs bankruptcy?

Let me start by sharing that, naturally as a bankruptcy attorney, I am biased towards bankruptcy but by the end of this article, you’ll see why.

What is ‘debt consolidation?’

Most debt consolidation programs works as follows: you contact the debt consolidation company and run through your debts with them.  They ask what you think you can afford.  After looking at the minimum monthly payments, they come up with a monthly amount that you’ll pay to them so that they pay to creditors.

After you get off of the phone, the company will then send you a contract, often with a term of one or more years, that you will pay the amount discussed but then introduce a handling charge – or, the alternative, that you have to pay the amount discussed PLUS the company’s fee.

Often time, because of the company’s fee, the amount sent in doesn’t provide enough money to pay the minimum monthly payments for each of the cards.

The result is that you’re expected to pay the debt consolidation company money for making your payments, but after factoring their cost, you continue to fall further and further behind.

I would dare to estimate that about one-third of the bankruptcy clients I deal with had tried a debt consolidation program.  Each and every one of them that entered into some debt consolidation program said that it left them worse off.

Why is bankruptcy better than debt consolidation?

For most people that enter into debt consolidation contracts, bankruptcy probably works just as well – if not better!.  If you qualify for a chapter 7 case, although there are costs associated with a case (attorney fee, filing fee), the costs are generally fixed and wipe out all of your debt.  For people that may have assets that may make filing a chapter 7 bankruptcy difficult, a chapter 13 case would do the same as a debt consolidation – except you can often enter into a plan paying no interest!


When dealing with debt, most people want a way out (assuming that their income can’t change).  Debt consolidation often appears to be an attractive option.  Unfortunately, however, debt consolidation usually comes with an added cost and often doesn’t even meet your monthly minimum payments.  For most the can do a debt consolidation, bankruptcy is most often a better option because of the fixed costs, and elimination of all debts (or even zero interest if in a chapter 13).

If you or someone you know would like to discuss bankruptcy to get rid of your debt, contact the Law Office of Richard Kistnen today to schedule an appointment.

Law Office of Richard Kistnen

128-22 Rockaway Boulevard

South Ozone Park, NY 11420

Tel.: (718) 738-2324

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