As a bankruptcy attorney, I am often asked questions about consolidating debts, such as, “How does debt consolidation work?” and “Can I do this to avoid filing bankruptcy?” To be honest, many people who are dealing with debt problems think about debt consolidation loans or other similar solutions at some point. Most people begin wondering how debt consolidation works when they are searching for a way to make creditors and debt collectors stop calling and sending threatening letters. Others begin to explore debt consolidation options only when they are served a lawsuit.
When clients ask me how debt consolidation works, I first begin by explaining the difference between a debt consolidation loan and the use of a debt consolidation company. Before diving into these differences I make an extremely important point: these options generally only work in situations where individuals have the ability to repay their debts, or at the very least, a significant portion of them. There are very few cases where we find that debt consolidation is the best option for solving overwhelming debt problems. To illustrate, let me explain each option and give examples of when it will work and when it is often better to file a bankruptcy.
