2026-06-09
What happens if I owe tax debt to the CRA?
It can be overwhelming to find out you owe the CRA a large amount of money. These debt relief options can help you regain control of your finances.
Difference Between Bankruptcy and Debt Consolidation
Get a Free
initial confidential consultation
An MNP Debt Advisor will contact you within 1 business day.
Bankruptcy and debt consolidation are two common debt relief solutions. Bankruptcy is a legal process that relieves you of your debt obligations, whereas debt consolidation involves taking out a loan to consolidate your debts into a single monthly payment.
What is Bankruptcy?
Bankruptcy is a legal declaration in which you surrender your assets to a Licensed Insolvency Trustee so you can be discharged from your debts. Your Licensed Insolvency Trustee will be assigned to liquidate your assets and notify creditors of your bankruptcy.
You must also fulfill your bankruptcy duties. This includes attending two credit counselling sessions and sending monthly income and expense statements to your Licensed Insolvency Trustee. Once you complete these requirements, you will be discharged from bankruptcy—usually between nine and 21 months for first-time bankruptcies.
What is Debt Consolidation?
A debt consolidation loan, obtained from a credit union or bank, reorganizes multiple debt payments into one monthly payment, typically at a reduced interest rate. Debt consolidation loans are convenient because there is only one regular payment to keep track of.
Deciding Between Bankruptcy and Debt Consolidation
To decide on the right course of action for your financial situation, it is imperative to consider the advantages and disadvantages of bankruptcy and debt consolidation.
Debt consolidation is not a matter of public record—unlike bankruptcy—and generally allows you to simplify your approach to debt management. However, debt consolidation loans may require a co-signer and could have hidden costs such as longer repayment periods, meaning you pay more in the long run.
Bankruptcy eliminates your debt so you get protection from creditors and a fresh start with your finances. However, you will also have to surrender many of your assets, and a first-time bankruptcy will stay on your credit report for at least six years.
Seek Advice Before You Proceed
Both options have pros and cons, but with expert advice from an MNP LTD Licensed Insolvency Trustee, you can learn more about the ups and downs of both processes. Book a free consultation today to ensure you make the most informed decision for your situation.
Related Questions
- How to file bankruptcy
- How does bankruptcy work?
- How often can you declare bankruptcy?
- What happens after bankruptcy?
- What is personal bankruptcy?
- Canadian bankruptcy laws
- Alternatives to bankruptcy
- Difference between insolvency and bankruptcy
- Difference between consumer proposal and bankruptcy
- What is a debt consolidation loan?
- Differences between secured debt and unsecured debt
Latest Blog Posts
2026-06-09
The CRA is calling to collect. Now what?
Getting a call from the Canada Revenue Agency (CRA) can be unsettling. If the call is about collections, the stress level often jumps immediately. You may worry about frozen accounts, garnishments, or losing control of your financial situation.
