Choosing between a debt repayment program and bankruptcy

A debt repayment program is an option to help people repay their debts with manageable payments. Learn how it differs from declaring bankruptcy.

Is the stress of debt getting to you? Whether you’re a few months behind on your bills or so far behind that bills go unopened straight into the trash, debt repayment is a scary thought for a lot of Canadians.

Many people consider bankruptcy a viable solution to their debt problems. To understand how a debt repayment program differs from bankruptcy, let’s first explore the definition of bankruptcy.

To put it simply, bankruptcy in Canada is this: you assign (surrender) everything you own to a bankruptcy trustee, in exchange for the elimination of your debts.

• Bankruptcy allows a person drowning in debt to start afresh.

Personal bankruptcy is a legal process designed to allow an honest but unfortunate debtor to get relief from their debts while treating creditors equally and fairly.

To go into bankruptcy in Canada, a person must live or do business in Canada, and must be insolvent. To be insolvent means:

1. To owe at least $1,000
2. Not to be able to meet your debts as they are due to be paid

Bankruptcy trustees are federally licensed, and their fees are regulated and moderate, so the cost of bankruptcyis reasonable.

A major downside of declaring bankruptcy, however, is that you may have trouble obtaining credit in the future, since bankruptcy will remain on your credit report for several years following the incident.

A debt repayment program is an option to help people repay their debts with manageable payments.

• Having a debt repayment program provides a higher rating on a credit report than filing for bankruptcy, which makes it easier to re-establish credit once all debts have been paid.