Unsecured Debt Consolidation Loans vs. Bankruptcy Discharge

Unsecured debt consolidation loans are an alternative to discharging or eliminating debt through bankruptcy. However, these loans may not be the best option for people wanting to deal with their overwhelming debt.

Unsecured Debt Consolidation Loans Are Different Than Regular Debt Consolidation Loans

Traditional debt consolidation loans are typically loans secured which use property as collateral to receive the loans. For instance, people pledge their homes as collateral to receive consolidation loans which includes second mortgages. Unsecured debt consolidation loans don’t require people to use their homes as collateral. In fact, unsecured debt consolidation loans are risk free loans because their no risk of repossession of property, if people can’t repay the loans, according to Credit Loan LLC.

Benefits of Unsecured Debt Consolidation Loans

Unsecured debt consolidation loans are great for people with a large amount of debt such as credit card debt, personal loans and payday loans, but no collateral. For example, individuals with debt, but rent apartments do qualify for the loans. Often people use unsecured debt consolidation loans to avoid bankruptcy, get rid of large debt or say good-bye to harassing creditors.

Unsecured Debt Consolidation Loans Don’t Eliminate Debt

Like any debt consolidation, unsecured debt consolidation loans combine are debt that people have into one new loan. Creditors are immediately paid off. However, people still have the debt. The only difference is that the individuals are paying one creditor instead of five or 10 of them. The downside of unsecured debt consolidation loans is that since there is no collateral these loans often come with higher interest rates.

Bankruptcy Discharge Is Not a Loan

Personal bankruptcy is a legal option provided by the U.S. Bankruptcy Court which allows people to deal with their debt. Bankruptcy is not a loan. There are two options when filing bankruptcy. When people file chapter 13, they bundle all their creditors into their bankruptcy then repay creditors in monthly payments over 36 to 60 months. After all the money is repaid, the debt is discharged or eliminated. However, when individuals file chapter 7, they combine all their creditors into their bankruptcy, but do not repay creditors. The bankruptcy is discharged.

Seek Legal Counsel

Attorneys can help people looking for ways to deal with debt. Typically, lawyers go over the disadvantages of unsecured debt consolidation loans such as more debt if people miss payments. Also, attorneys can indicate which bankruptcy option individuals qualify for.

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