The Difference Between Bankruptcy and Debt Consolidation

Before making a decision, it is important to know the difference between Bankruptcy and Debt Consolidation.

When facing financial difficulties, it is important to be well-informed about all available solutions, particularly 2 popular ones: Debt Consolidation and Bankruptcy.

Understanding the Difference Between Bankruptcy and Debt Consolidation: What You Need to Know


When filing for bankruptcy, you exercise a right granted to you by law without the need of your creditors`consent. If your income is barely sufficient to cover your living expenses, you can make an arrangement with your advisor at Jean Fortin for a suitable monthly payment. However, if your income is higher than the amount set by the Office of the Superintendent of Bankruptcy, the law determines the amount you will have to pay for the duration of a bankruptcy (1st bankruptcy – 21 months, 2nd bankruptcy – 36 months). Depending on the circumstances, you will be able to keep certain or all the assets or you may choose to surrender those you no longer want. Finally, your bankruptcy will be recorded on your credit report for 6 years with Equifax and 7 years with TransUnion after its date of completion.

Debt Consolidation

Debt consolidation, on the other hand, involves obtaining a loan from your financial institution to repay all or part of your unsecured (i.e. personal debts such as personal loans, credit cards and personal credit lines) debts, which are any debts other than your mortgage and car loan. Be aware that such a loan usually has a higher interest rate than a regular loan, ranging between 12% and 14% per year.

The objective of a debt consolidation is to:

  1. Reduce the interest fees you pay by repaying debts that have a higher interest rate than said loan.
  2. “Force” you to repay within a maximum period of 60 months.
  3. Simplify debt management by having only one monthly payment for the consolidated debts.

You can keep all your assets and your credit report will not be affected. If your financial institution agrees to lend you money and, more importantly, if the monthly payments of the consolidation loan fit your budget, it can be an excellent option for your financial problems.

Which solution should I choose to settle my debts?

As you can see, there are significant differences between bankruptcy and debt consolidation. If you are hesitating between these 2 options, it is important to understand the differences well. Also know that the consumer proposal is an alternative solution that incorporates certain advantages of both these options and should always be considered.

A consultation with an advisor at Jean Fortin can help you decide which solution is the best for you. It’s free, confidential, and without obligation.

By Pierre Fortin
Jean Fortin & Associés
Personal Finance Advisor
Licensed Insolvency Trustee