Bankruptcy versus debt consolidation

45393153_MAre you heading toward a debt crisis? Are you currently in the middle of one and desperately grasping for the proverbial life preserver?

If you had your choice, your debts would magically disappear into thin air one night, right? But we know that’s not going to happen. You may be considering two debt relief measures: bankruptcy and debt consolidation. If you choose wisely, one of these two options can actually help you come financially clean in due time, and can help you start mitigating financial risk and gaining leverage.

In order to understand which one of these you should pick, you need to thoroughly understand the nuances of each. Here are the pros and cons:

Debt Consolidation

Debt consolidation requires you to get a new loan to pay off all or most of your existing loans. You take the new loan at a lower interest rate than your existing debts’ combined interest rates, and you manage to pay all your debts with the proceeds.


  • Since the consolidated loan has a lower interest rate than your original debts, you end up saving money.
  • You focus all your energy on paying off that one consolidated debt instead of haggling with several debtors.
  • You will be able to put an end date to your debt and take care of your credit score after that.


  • Since your credit score is already falling, you may need a co-signer such as a parent or close friend to get your consolidated loan approved.
  • If you’re not particularly good with debts and commitments, you’ll be caught up in the vicious cycle of debts for a really long time, with no end in sight.


There are instances when the debt acquired is so staggering that no amount of time or debt consolidation can solve your problems. In this case, you can file for personal bankruptcy under Chapter 7 or Chapter 13 of the U. S. Bankruptcy Code. Under Chapter 7, you will have to sell all your assets except those exempted under the law to satisfy your bankruptcy judgment. (A judge will consider your debts and circumstances to make that judgment). Chapter 13 will require you to make a three- to five-year repayment plan and pay off your non-discharged debts, typically by way of a single monthly payment. Non-discharged debts are ones the law and/or judge says you still have to pay.


  • Chapter 7 bankruptcy can help you get rid of all or most of your debts, which can help you get a fresh financial start
  • All your debt woes: foreclosures, repossessions, unsecured debts, and wage garnishments are solved.
  • Your state laws may help you exempt some of your property on grounds that some property is exempted under Chapter 13 bankruptcy.


  • You won’t be able to hold onto most of your assets under Chapter 7 bankruptcy. Any asset that could have been valued for cash will be cashed out to pay toward your debts.
  • Qualifying for Chapter 7 bankruptcy is hard. You need to pass a means test (your monthly income should be less than the median income for a family of your size in your state) to be eligible. Also, debts such as those related to alimony, child support, and student loans cannot be discharged under either form of bankruptcy.
  • Hiring a lawyer and preparing for the court proceedings can be a daunting affair, especially when you’re trying to get rid of debt.
  • Bankruptcy is a scary word. With that on your credit record, you may have trouble securing loans for several years to come.

Which One Should You Pick?

Both bankruptcy and debt consolidation have pros and cons, depending on the nature of your debt. However, some common patterns make it easy for you to pick between the two.

If you’ve gotten into debt because of one or two mistakes, such as too much spending, a bad investment or a medical bill, debt consolidation can help you bounce back if you stay committed to financial discipline in the future.

However, if you know that your finances are so messed up that no amount of financial discipline can help you, and that you can qualify for bankruptcy, then that should be your choice. If it gets more complicated than this, you will need to seek legal financial assistance to help you decide the best option.

Debt relief is no simple subject. We understand that bankruptcy legalities and debt consolidation options can both be complicated. Instead of just getting by, how about letting us help you:

  • Restructure business debt
  • Formulate a plan of action
  • Negotiate IRS and state tax debts
  • Rebuild your business

At Ascent Law Firm we offer:

  • Free initial consultations
  • Payment plans
  • Chapter 7, 11, and 13s
  • Fast, friendly service and results
  • Experienced bankruptcy-focused attorney
  • Expert help with the lowest fees

Do not hesitate. Reach out to us today and begin your path free of debt. It is possible, and we are here to help.


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