Consumer Questions |
Debt Consolidation |
Debt
Relief |
Bankruptcy
Chapter 7 Chapter 13 |
How does this affect my credit? |
Most consolidation companies report to the credit bureaus you are in debt consolidation |
Consumer must allow credit to become delinquent before the debt relief company can negotiate settlements. |
Totally negative credit report
for 10 years |
Totally negative credit report
for 10 years |
Must I be current on my mortgage? |
N/A |
No effect |
Yes |
No |
What are the requirements? |
The debt consolidation plan has to be agreed to by ALL creditors. |
There is no requirement for any creditor to agree to the debt relief plan |
Must meet guidelines for income and assets for bankruptcy. |
Must meet guidelines for income and assets for bankruptcy. |
How does this affect my balances? |
Balance will remain the same. |
Balances will be lowered to negotiated amount |
All balances are erased. |
Balances are preset by court |
How does this affect my interest rates? |
Interest rates will be lowered. |
There is no interest. |
N/A |
Interest rates are erased. |
How does this affect my payments? |
Lowered monthly payment |
N/A |
No payments |
Trustee sets reduced payments for specific term |
How does this affect my tax liability? |
No effect |
Consumer will receive a Form 1099 for the difference between the original balance and the negotiated balance, and s/he will have to pay taxes on that amount, as if it were additional income. For example, if your income is $70K and the debt relief saves you $10K, your federal taxes go up by $3,200! |
No effect |
No effect |
|
How long will this take? |
Up to 5 years |
Up to 3 years |
Typically 90 days |
Up to 5 years |
