Choosing Between Debt Consolidation or Bankruptcy- The Best Option for Debt Relief


Any breadwinner in the family or any other kind debt payer feels the burden of debt, come payment day. This is especially so if you owe more than what you earn each month. Apart from paying for the usual bills, you need to pay your debts on time and correctly. It may seem like a dire situation when you can’t afford it sometimes. Thankfully, there are options for debt relief for you to weather out your financial crisis.

In this article we consider two such debt relief options– Debt Consolidation, Bankruptcy

Debt Consolidation

If you’re dealing with debt, but still have good credit, you may be able to tackle your balances with debt consolidation. This involves consolidating your debts into one manageable account. With this approach, you take out a personal loan or complete a balance transfer to lower the interest rate on your debt. With a lower rate, more of your payment goes toward principal rather than interest, helping you save money and get out of debt faster.

This basically helps eliminate the higher interest rate debts and pay lower monthly payments and allow you to concentrate on making just one payment. However, this does nothing to your total balance. What you will be doing is shifting all of your debts into just one account.

How to consolidate your debts

You could consolidate your debts by getting a loan from a bank, credit union or some other source of funds. If you own your home and have some equity you could most probably get a home equity loan and use the funds to pay off all of your other debts. These are called secured loans because you’re required to secure them by using the equity in your home as collateral.

If you don’t own your home or if you don’t have much equity you might be able to get an unsecured or personal loan. However, with a personal loan your monthly payment would be higher than if you took out a home equity loan. The upside of these types of loans is that you would be rid of all those angry creditors or debt collection agencies that have been harassing you. The downside is that in either case you will end up paying more interest over the long run than if you were to just simply repay your debts short-term. And if you do take careful to not take on any new debt you could end up back where you started – struggling to make your payments.


Suppose you have no source of income or a way to repay your debts to repay your debts either at the moment or even in two or three years, your final option is to file for bankruptcy. This would put a serious red mark on your credit history rendering you unable to get any new credit for at least two or three years after your bankruptcy. And when you are allowed to take credit next it usually comes with a very high interest rate. You will be required to pay more for your auto insurance and may have a problem renting a house or apartment. The bankruptcy will stay in your credit reports for 10 years and in your personal file for the rest of your life. You may even find it challenging to get hired if your prospective employer finds out regarding your bankruptcy in your credit history.

Types of Bankruptcy

You can either file for a chapter 7 or a chapter 13 bankruptcy. The chapter 7 bankruptcy is called a liquidation bankruptcy as its goal is to liquidate your assets to repay your creditors. Assets such as homes, vehicles or any personal items are not included typically in a chapter 7 bankruptcy.In most situations in fact, you might not have any assets that could be liquidated.

A chapter 13 bankruptcy is also known as a reorganization bankruptcy wherein the goal is for youto reorganize your finances so that you would be able to repay most of your creditors.

In order to qualify for either type of these bankruptcies you will need to show proof that you are simply unable to repay your debts. You may be asked to obtain credit counseling from an agency approved by the Canada Trustee’s office before you file for bankruptcy. The agency typically will provide you with a certificate of completion and you must use this in your filing.


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