Medical bills, compounded mortgage and auto loan payments, credit card debt and job loss are just some of the factors that impact the financial stability of many American families. In fact, as of September 2021, consumer debt is nearly $15 trillion in the United States, an average of almost $93,000 per consumer. Because debt grows and multiplies, once you find yourself in it, it can be very difficult to get out. Read on to learn more about the pros and cons of debt consolidation and personal bankruptcy and decide which might be best for your unique situation.

Debt Consolidation Explained

Simply put, debt consolidation involves taking out one large loan to pay off a number of smaller debts. In doing so, the pay off process often becomes easier because it involves making just one large payment each month to one creditor vs. multiple smaller payments to a variety of creditors. If the interest rate on the one large loan is lower than the individual rates on the smaller loans, then this option can provide a savings. Keep in mind, however, that securing a low interest rate loan can be difficult for those with poor credit. Here is a look at the pros and cons of debt consolidation:


  • Paying one bill each month can simplify personal financial management and reduce stress.
  • Unlike bankruptcy, debt consultation is not a matter of public record. This means that current or future potential employers are unlikely to find out about any debt consolidation activity.
  • Assuming credit cards and other lines of credit have not been defaulted on, these generally remain available to an individual following debt consolidation. Of course, it is not advisable to take on more debt before the large debt consolidation loan is paid off.


  • Those with poor credit may find it difficult to qualify for a debt consolidation loan, or may only be able to qualify for one at an outrageous interest rate.
    Although debt consolidation can reduce monthly payments, it also stretches out the length of time for payments by months or even years. Depending on the payment terms and interest rate, the borrower generally ends up paying more in interest over the life of the consolidation loan.
  • If a home or automobile is used as collateral to qualify for a consolidation loan, the borrower risks losing their home or car in the event of something unforeseen (e.g. an unexpected job loss) that causes them to default on the loan.

Personal Bankruptcy Explained

Bankruptcy is a legal financial process that is mandated by state and federal law to provide individuals who meet certain criteria with an option to get out of their contracts with creditors. There are two types of personal bankruptcy: Chapter 7 and Chapter 13. Depending on level of income and amount of debt, some people will qualify for Chapter 7 and others will qualify for Chapter 13. A Chapter 7 bankruptcy is often referred to as a liquidation of debts, whereas a Chapter 13 bankruptcy is a reorganization of debts. Here is a look at some of the pros and cons of personal bankruptcy:


  • Individuals who qualify for a Chapter 7 bankruptcy are able to eliminate nearly all (unsecured) debts, such as credit card bills and medical bills.
  • Any debts that are eliminated as part of the bankruptcy process are gone forever and will not need to be paid back. This enables people to start over with a clean financial slate.
  • Those who qualify for Chapter 13 bankruptcy can pay off debts through a payment plan designated by the courts, generally at a lower interest rate. In some cases, it is even possible to lower the interest rate on an auto loan or negotiate a mortgage modification.
  • Chapter 13 bankruptcy can help families hold onto their home and property.
  • The process of filing for bankruptcy (either Chapter 7 or Chapter 13) immediately halts all collections activities. This means an end to harassing debt collection letters and phone calls as well as an end to most wage garnishment actions.


  • Bankruptcies do show up on credit reports, and this is a document that could be requested by a current or future employer.
  • Chapter 13 payments are sometimes deducted directly from payroll, in which case it may come to the attention of an employer.
  • Filing for bankruptcy can result in a temporary reduction in a person’s credit score. However, bankruptcy can also improve the debt-to-credit ratio and result in an increase in credit score in the long run.
  • In some cases, those who file for Chapter 13 bankruptcy may need to surrender luxury goods, such as jewelry or a boat.

Consult an Experienced Bankruptcy Attorney

You are overwhelmed with credit card bills, student loans or medical expenses, you are not alone. According to the World Population Review, per capita debt in Maryland is $4,621 – higher than the national average. At Waldman, Grossfeld, Appel & Baer, our bankruptcy attorneys have been helping Marylanders get out of debt for over 50 years. We carefully evaluate each client’s finances and offer guidance and support. Our bankruptcy attorneys serve clients in Rosedale, Reisterstown, Severna Park, Middle River, Perry Hall, Pasadena, Cambridge, Essex, Glen Burnie, Towson, Owings Mills, Westminster, Annapolis, Columbia, White Marsh, Ellicott City, Easton and Bel Air. Contact us for a consultation.