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How Debt Consolidation Differs from Bankruptcy

When debts and financial stresses weigh heavily, consumers often find themselves at a crossroads. Should they consolidate their debts, or consider bankruptcy?

If either prospect seems daunting, a reputable Chicago bankruptcy attorney will have the right answer. With help from a Prime Bankruptcy attorney, Illinois home and business owners alike can be on their way to a better financial future. Debt consolidation and bankruptcy both offer financial relief, but their approaches differ, as shown below.

Debt Consolidation

This strategy saves money and protects your credit rating, all while organizing multiple debts into one consolidated payment. Here are some of the biggest benefits to this approach:

  • Your reputation remains intact, as does your credit rating.
  • Your consolidations are not entered into the public record.
  • You can still access credit (depending on your agreement).
  • Your debts are simplified into one payment at a lower interest rate.

Although there are many advantages to debt consolidation, this approach also has disadvantages:

  • You should be aware of the potential for hidden fees (ask up front).
  • You may risk losing property given as loan collateral.
  • You may pay more long term because of reduced monthly payment amounts.
  • You may risk taxation (IRS may consider saved costs as actual income).


Both Chapter 7 and Chapter 13 bankruptcies offer a "clean slate" approach to finances. Here are the most common benefits to bankruptcy:

  • You may eliminate debts (Chapter 7) or restructure them (Chapter 13) under court protection.
  • You are protected from creditors through an automatic stay prohibiting collections.
  • You start fresh, particularly with Chapter 7 bankruptcy, eliminating most of your unsecured debt.
  • You may prevent your home from foreclosure.

Here are some potential disadvantages to bankruptcy:

  • Your credit score is negatively impacted for seven to ten years (however, it may be impacted already because of your bill-paying record).
  • You will be on stricter limits (particularly in a Chapter 13 bankruptcy) and may have limited or no access to credit.
  • Your employer may know of your bankruptcy (a matter of public record).

Prime Bankruptcy knows the answers to your questions. Visit a Chicago bankruptcy attorney at one of our eight Chicagoland locations and take charge of your financial future today!

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The information on this website is for general information purposes only. Nothing on should be taken as legal advice for any individual case or situation.

Main Office: 123 W. Madison Street, Suite 205 Chicago, IL 60602
Phone Number: (312) 427-3100