- Bill consolidation is a program taken on by a consumer or household to combine a number of bills into a smaller, more manageable number of bills. The overall amount of payments is also reduced as a result of bill consolidation. The reduced amount is usually paid in monthly installments, although other payment arrangements are also possible.
- Bill consolidation loans are loans issued to cover the total amount owed on a number of bills. The bills are paid off with the loan, and the debtor makes payments on the single loan. The single loan payment is almost always lower than the total payments for the separate bills. Additionally, if the bill consolidation loan is taken as a home-equity loan or second mortgage, the loan may be tax deductible, whereas credit card payments and other unsecured debt are not.
- Bill consolidation by credit counseling does not involve taking out a loan. Instead, the debtor works with a credit counseling agency. The credit counseling agency negotiates with creditors on behalf of the debtor for a lower overall payment and lower monthly payments. Once the credit counseling agency has completed its negotiations, it often arranges for the debtor to make a single payment to the agency, which the agency divides among the various creditors according to the agreements made.
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Chapter 13 bankruptcy works much like bill consolidation through a credit counseling agency. The debtor lists all his bills and submits the appropriate paperwork to the bankruptcy court. The court then determines the amount of repayment that must be made to each creditor. Chapter 13 bankruptcy also includes a requirement for the petitioner to undergo credit counseling, which may or may not include a debt-repayment agreement.
Filing a Chapter 13 bankruptcy petition immediately puts a stay on all collection efforts, including foreclosure. A successful Chapter 13 petition allows the petitioner to catch up on past due mortgage payments through installment payments, which is why many homeowners with a large debt load choose to file a Chapter 13 bankruptcy petition. - Bill consolidation programs are designed to allow individuals and households to gain breathing space with their finances. It is important for the debtor to avoid taking on new debt. This is especially true of credit card debt. With a Chapter 13 bankruptcy petition, failure to make regular mortgage payments that come due after the petition is filed may result in the homeowner losing her home, despite filing a bankruptcy petition.
