Debt Consolidation vs. Chapter 13 Bankruptcy

Debt Consolidation vs Chapter 13

A debt to a single entity can be quite a problem for debtors. The problem becomes more complicated and unbearable once they accumulated. Financial experts know the burden of dealing with huge amounts of debts to numerous entities. Luckily, debtors can deal with their financial problems through solutions like debt consolidation and chapter 13 bankruptcy.

Although both strategies target debt management, both have different approaches and advantages. Debtors may find one of them more beneficial for their unique financial status.

Debt Consolidation

Debt consolidation is the process of consolidating all secured and unsecured them then paying them as a a whole. The payment process may require taking out a new loan for repayment. Although it requires getting a new loan, the payment process and management is easier than before. Debtors don’t have to think of their debts from multiple creditors and eventually lose track of them.


Debt consolidation has a lot of advantages. One of the main benefit is easy debt management. Regardless of the debt amount, seeing one debt to pay is more appealing than looking at multiple debts from multiple entities. Although it doens’t change the fact that there’s a lot of money to pay, an individual will be more motivated in managing his debt than being overwhelmed by a whole list of debts.

Another advantage is debt consolidation protects financial credibility and credit rating. Debt consolidation may appear on your credit report, but it doesn’t necessarily lower your credit standing, which means you don’t have to worry about the process affecting your credit score and experience its negative effects other people’s view of your financial credibility.

While debt consolidation causes people to pay interest, it’s lower than other repayment schemes. Moreover, monthly repayments can also be lower, allowing debtors to easily pay off all their debts.

Credit card access retention is another advantage offered by debt consolidation. Despite having the need to pay for his debts, users can still use their credit cards during emergency cases. However, a person paying consolidated debt should be disciplined in using their credit cards to retain the purpose of debt consolidation, which is to be cleared of debt.


Debt consolidation has its advantages, so a person filing for this strategy should seriously consider this option. One is the possibility of losing all assets in case of secured loan. Assets are used as collateral for paying the debt, resulting to reclaimed properties once the debtor can’t pay everything.

Another disadvantage is the possibility of hidden costs. Many debt consolidators offer their service, but at the expense of additional costs to their clients. Therefore, a person may be paying low monthly repayments and interest, but may end up paying more due to hidden costs without their knowledge.

Filing Process

Several companies offer debt consolidation services. They will check clients’ finances and current loans then check out all loans available for consolidation. Once noted down, the consolidator would inform clients about the procedures, possible monthly payments, interest and additional fees. Then the client may wish to continue with the process or consider other options.

Chapter 13 Bankruptcy

Bankruptcy is also one of the ways to repaying debts and may be the perfect choice for some debtors. This allows them to repay all their debts easily through their assets. Bankruptcy can be filed under chapter 13, which is deemed similar with consolidation. The truth is this strategy is different from debt consolidation due to numerous reasons.

Chapter 13 bankruptcy allows people to reorganize their debts then pay according to a special repayment plan organized by the debtor. The repayment process should be completed after three to five years after the plan is approved.


Bankruptcy has its advantages that work well for debtors. One is protection from creditors upon filing for bankruptcy filing. Once a person filed for bankruptcy, it makes him eligible for automatic stay, a petition where creditors are prohibited from doing several actions against a debtor. This allows the debtor to prepare properly for repayment. Through automatic stay, an individual won’t receive harassing calls from collectors, asset repossessions, lawsuits and foreclosures. Chapter 13 bankruptcy will somehow ease the pressure of repayment for debtors.

Another advantage is a person can get back on their feet after being discharged from bankruptcy. Once everything has been repaid and eliminated, a person can start their financial records on a clean slate. Assets that have been financed may also be surrendered if a person doesn’t want to accumulate any debt.


While beneficial, Chapter 13 bankruptcy also has its downsides for debtors. The major one is it tarnishes a person’s financial credibility. Bankruptcy is declared on credit scores, lowering it down and labeling debtors as a financial risk. While bankruptcy may be removed from record, there are instances when it will remain permanently depending on the bankruptcy case. Moreover, the low credit score will cause debtors to have problems in applying for anything that involves money like services and loans.

Drastic lifestyle change is also another repercussion of filing for bankruptcy. A person would need to surrender the luxuries they once enjoyed. Some are unable to cope with the changes while others struggle to adapt to the new lifestyle, especially since most of them can’t apply for loans yet.

Finally, a person may feel that his private life is affected by bankruptcy. Once bankruptcy is on a credit report, other people may learn about it and affect their perspective or relationship to a person. Some employers may fire employees because of their bankruptcy report. Once this status buzzed within the workplace, it might affect relationship among colleagues, especially when it comes to money matters.

Filing Process

A person filing for chapter 13 bankruptcy would need to file it to bankruptcy courts and collect all documents required for filing process. A trustee may be in charge of the case while all parties in interest would attend court hearings. A debtor may also consult a bankruptcy lawyer to know his status and best strategies that will maximize bankruptcy’s benefits.

Overall, debt consolidation is different from Chapter 13 bankruptcy. It’s best to consult with an expert to know the best option if you’re thinking to use these strategies to solve your financial difficulties.