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Bankruptcy vs. Credit Counseling (Debt Consolidation)

Chapter 7 permanently eliminates most types of debt without any repayment.

Chapter 13 allows repayment of unsecured creditors, mortgage-loan arrears, taxes, medical bills, car loans, and other debt through a court-enforced repayment plan. Debtors must repay creditors according creditor-approved lowered interest rates over a period of several years. This is ideal for those with credit card debts only. The repayment plan does not take into account the debtor's other debts (e.g., medical, payday advance, car loans, repossessions, judgments, taxes, mortgage arrears, etc.)

The filing of bankruptcy initiates an automatic stay. All creditors must cease all collection calls, pending lawsuits, harassment, garnishments, levies, etc., or face severe sanctions for violating automatic stay protections provided by law.

Credit counseling/debt-consolidation plans do not eliminate harassment (e.g., collection calls, lawsuits, continued negative credit reporting, garnishments, levies, etc.) from non-participating creditors.

Chapter 7 (no repayment) takes approximately five months from date of filing to receipt of discharge.

Chapter 13 repayment plans range from three to a maximum of five years. Repayment plans through credit counseling/debt consolidation often exceed original proposed repayment terms/period.

Bankruptcy attorneys are licensed by the California State Bar. Complaints can be filed with the Bar through www.calbar.org. There is a physical office you can visit for personal counseling and representation. Many credit counseling/debt consolidation companies are based out of state or are Internet-based, making it difficult to contact, cancel program, sue for damages, or obtain a refund.

Bankruptcy is an established system of federal law, procedures, and regulations created to protect you, the debtor.

Credit counseling/debt consolidation companies are completely unregulated, meaning that you have very little protection against fraudulent companies.

Bankruptcy can eliminate federal and state tax debt in certain cases

Credit counseling/debt consolidation does not eliminate or deal with taxes.