Debt of any size can be stressful. Yet, most of us have some existing debt. So, how do you know if your situation requires professional help?

First, sit down and assess your situation. Does your debt overshadow your assets? If so, you may want to consider bankruptcy or debt consolidation. Here are some important differences between debt consolidation and bankruptcy:

Debt Consolidation:

A debt consolidation program takes multiple debts and combines them into one. Resulting in a new loan to repay existing debts.

So, instead of making payments to multiple creditors at different times, you will have one payment to focus on. As a result, this can help to reduce the monthly payments and interest rates on your debts. Keep in mind, a potential problem with this is that the IRS may determine that the amount of money that was saved in the debt consolidation is taxable income.

Also, debt consolidation is not the same as debt settlement. Debt consolidation will reduce the number of creditors for your debts. Whereas, debt settlement will use an approved credit counselor to negotiate with creditors on your behalf.


The bankruptcy process varies based on the chapter under which you file. An important feature of a bankruptcy is that a temporary freeze, or automatic stay, is placed on all collection actions against you. The automatic stay includes repossession, foreclosure, and protects your utilities from being shut off for nonpayment.

Debt consolidation cannot protect you from collection actions. And, it does not make the same impact to your credit score that bankruptcy can. While bankruptcy may initially hurt your credit, it also removes many of your debts. This places you in the best position to begin rebuilding good credit.

In a Chapter 7 bankruptcy, a trustee is assigned to your case and works to sell off your non-exempt property to help pay off your debts to creditors. On the other hand, a Chapter 13 enables your attorney to work with you and your creditors to negotiate a repayment plan. Or, gradually pay off a portion of your debts. Both chapters discharge, or remove, most debts, which includes medical and credit card debt.

Which option is better?

Determining which option is better for you will ultimately depend on your unique situation. So, meeting with  a professional bankruptcy attorney to see if bankruptcy or debt consolidation will best remedy your financial situation is recommended.

Do you have more questions and want to set up a free consultation? Contact us for more information.