Man with head in hands looking over bankruptcy documents


John E. Pytte March 15, 2021

Declaring bankruptcy is a major decision. More than 24,000 people in Georgia made the choice to file for Chapter 7 or Chapter 13 bankruptcy between April 2019 and March 2020. It’s unlikely that any of them made that choice lightly.

If you have found yourself overwhelmed by debt with no ability to get it under control, bankruptcy might be able to provide you with a way out. As with any option for restoring financial stability, bankruptcy is accompanied by pros and cons. It is wise to explore bankruptcy alternatives as well so if you make the decision to file, you do so knowing that it offers the best avenue for a fresh financial start.

At Pytte Law, I have helped hundreds of clients in Savannah and Hinesville, Georgia, consider all their options for a new financial beginning.

What is Debt Consolidation?

Debt consolidation is combining two or more debts and paying them off with a single loan. Instead of making four different payments to four different creditors, for example, you make one lower monthly payment on a debt consolidation loan.

Some pros of debt consolidation include simplifying the number of payments you make. A debt consolidation loan does not always charge less interest than the original debts, but if it does, you can save money on interest over time if you comply with the terms of the loan.

Potential cons include gaining access to a debt consolidation loan which typically requires a good credit score. You may incur fees for loan origination and closing, balance transfers, or other annual fees. It can also cause a dip in your credit score because getting a consolidation loan initiates credit inquiries.

What is Debt Settlement?

Debt settlement — also called “creditor negotiation” — involves negotiating a repayment plan with more manageable payments, or reducing the amount owed by agreeing to pay a reduced lump sum in full payment of the debt.

Negotiating with creditors or collection agencies could help you lower the amount you owe, avoid bankruptcy, and keep creditors at bay while you negotiate a settlement. Nonetheless, there are risks.

Creditors may not agree to negotiate or never come to an agreement, and if you stopped paying them while negotiations were occurring, you could end up owing more in interest and penalties. A third-party debt settlement company will charge you fees even if they fail to settle your debt for a reduced sum. As with bankruptcy, payments not made while negotiating a settlement could be reported to credit agencies and damage your credit score.

What is a Debt Management Plan?

There is also the option of working with a debt management or counseling agency to manage your debt, similar to the way it is managed under Chapter 13 bankruptcy. The agency devises a plan for repayment of your debt over time, but unlike Chapter 13, it does not appear on your credit report.

There are disadvantages when it comes to protecting yourself if you fail to make a payment. Under Chapter 13, a creditor is not allowed to initiate collection measures or report to credit agencies if you miss a payment. A debt management plan does not provide that protection under the law. Additionally, Chapter 13 allows you to reduce the amount you owe for unsecured debt, such as credit card balances and medical bills. With a debt management plan, you have to pay the debt in full.

Furthermore, choosing an agency to work with requires careful research. Most debt management and counseling agencies are paid fees by creditors, resulting in a potential conflict of interest.

Get Guidance with a Free Consultation

If you are mired in debt and are ready to get out of it, the best decision you can make is to talk to an experienced bankruptcy attorney. An attorney will build a financial picture comprising the amount and types of debt you owe, income sources, assets, and other information. They will then discuss the pros and cons of all options available to you, providing the information you need to make such an important decision about your financial future.

At Pytte Law, I help clients in Savannah, Hinesville, Statesboro, Richmond Hill, and Ludowici, Georgia, and in Chatham, Liberty, Bryan, Effingham, and Long counties explore their options. For those who decide to file Chapter 7 or Chapter 13 bankruptcy, I guide them through the process from beginning to end and helped them find ways to avoid insurmountable debt in the future.

It all begins with scheduling a free consultation to discuss your options. Call me at Pytte Law today to get started.