Making Ends Meet

Making Ends Meet

Debt Settlement Or Bankruptcy—Which One Is Preferable?

Judy Gomez

Are you in a financial predicament and aren't sure what to do? If you are swamped in debt and have no way of paying it all off, you are probably looking for options. While there are several, two of the most common are debt settlement and bankruptcy. Either one can get you out of debt and give you a clean financial slate. However, the two things are very different and have differing impacts on your credit and ability to get credit in the future. Each one also affects your current finances in different ways.

Here are the differences between debt settlement and bankruptcy, so you can decide which one is the best for your financial situation.

What Is Debt Settlement?

Debt settlement is available to people who are not totally broke, but who do not have enough money to pay off all of their debt. According to, you must owe more than $10,000 and be earning an income to use debt settlement services in Canada. Debt settlement companies will contact your creditors on your behalf and set up repayment plans. You will typically make payments to the debt settlement company for two to three years to build up a "repayment fund."

At that point, your debt settlement company will negotiate the amount of your repayment, which will be significantly less than the full amount you owe and come out of the repayment fund you have built up. Creditors want to see you have the money to make some kind of payment to them, even if it's not for the full amount, which is why you have to build up the fund first.

Once you've paid off the debt for the agreed-upon amount, your credit report will be updated to reflect that the debt has been paid for less than the amount owed. Your credit will take a hit, but not as bad of a hit as it would if you never repaid the debt at all or if your creditors took you to court to get a judgement against you to pay them the full amount.

What Is Bankruptcy?

When you declare bankruptcy and your petition for it is approved by the local court, your debts will be wiped out and off of your credit record. However, the bankruptcy itself will be added to your credit record for seven to ten years, and will make it difficult for you to obtain additional credit during this time.

The good news is that getting a bankruptcy approved can be done very quickly, giving you a fresh financial start without having to wait several years as with debt settlement. Your creditors must also quit calling your or garnishing your wages immediately upon your bankruptcy petition being filed.

To file for bankruptcy, you must owe $1,000 or more in debt and be financially insolvent—meaning you have no way to to repay the money—even at a reduced amount. This is a good option for people who are unemployed, disabled and unable to work either temporarily or permanently, or whose jobs don't pay them enough to cover living expenses and debt repayment.


If you want to begin using credit again soon and have the ability to repay some of your debt, debt settlement is your best choice. If using credit in the next seven to ten years isn't a concern to you, and you don't have the means to repay any of your debt, then bankruptcy is the choice you need.

Contact a debt settlement company or a bankruptcy trustee today to start getting your financial life back on track. If you're still not sure which choice is right for you, contact a credit counselor to discuss it, so you will be sure to pursue the appropriate avenue to give you the results you need.


2019© Making Ends Meet
About Me
Making Ends Meet

Nothing is worse than doing your bills, only to discover a sudden expense. When I was in college, I found myself trying to make ends meet by working three jobs and skipping meals occasionally. However, managing your finances doesn't have to be difficult. If you can learn how to save money and make better decisions, you won't have to worry about being able to afford the necessities. My website is filled with information that can help you to manage your money without completely altering your lifestyle. As you go through these articles, I hope that you can find information to help you on a daily basis.