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Loan Consolidation or Bankruptcy

Produced by Mariah Jennings-Rampsi, South Coastal Counties Legal Services, with funding from American College of Bankruptcy
Reviewed September 2019

Two other ways to deal with financial problems are:

  1. to “consolidate” your debt. To consolidate means to get one big loan to pay off all of your other loans,  or
  2. to file for bankruptcy.


Both of these choices have serious consequences. Talk to a lawyer before you do either.

Loan consolidation

Credit card companies, banks and credits unions may offer to consolidate your debts for you.  This means they will offer you one big loan to pay off all your smaller loans.  Be careful. In the end, you may pay more interest than you pay now.  Look at the interest rate and late fees for each of your debts.  If some of the debts are dischargable in bankruptcy you may not want to take out more money to pay them off.

Filing for bankruptcy

If you:

  • have a low-income and
  • you are on disability

your income is probably already “protected.”  Your income is probably “execution proof.”  Filing for bankruptcy may not protect your income any more than it is already protected.  

Bankruptcy can help you if your assets or income are worth more than the protected exemption amounts.  Child support, alimony and most tax debt cannot be discharged in bankrutpcy. 

Bankruptcy has serious effects.  Talk to a lawyer before filing for bankruptcy.  See the section on exemptions to learn if your income and assets are protected.

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