Legal Question in Bankruptcy in Illinois

The basic differences are these:

1. Debt consolidation: This is where you take out one larger loan with a better (and perhaps fixed) interest rate to pay off a number of smaller, individual debts that have very high interest rates. This usually requires you to have something of value to put up as collateral, otherwise the single loan interest rate may not be as favorable.

2. Settling a debt: This is where you and the creditor compromise the debt -- they get a little less and you pay something, but at least it's over with. Sometimes debt consolidation can include settling some of the individual debts.

3. Bankruptcy: This is a federal court procedure where settling debts can take place, where wage earners can have a court order a plan for loan payoffs, or where if all else fails, your available assets are used to pay off what debts they can cover and you are discharged from most others. PS - taxes are not discharged! And while you can settle debts all day long or arrange for debt consolidation loans all day long, once you've gone through bankruptcy you have to wait 6 years before you can do it again.