Impact of a Consumer Proposal & Bankruptcy on Your Credit
The Story You May Not Have Heard
One of the worst things you can possibly do for your credit is to file a consumer proposal or file for bankruptcy. Both have the same effect on your credit and typically remain on your credit reports for roughly the same length of time. A consumer proposal typically takes around 5 years to pay off and then the record lasts on your credit report for another 3 years after that. So it’s normal for a proposal to impact someone’s credit for around 8 years – even with a credit repair program. Bankruptcy payments last for 9 to 21 months. After that, the record stays on your credit report for 6 to 7 years depending on your province. So a first-time bankruptcy can impact your credit for 7 to 9 years. Click here for specific details.
People who sell proposals will usually split hairs about the difference in how a proposal is reported on your credit reports versus a bankruptcy. Technically, debts included in a proposal will report as an R7 (really bad) on your credit reports and debts included in a bankruptcy will report as an R9 (the very worst). But this is only half the story. The other half is that your credit report also displays a special warning notifying creditors that you have become insolvent and have received court ordered protection.
In the eyes of the court system, the credit reporting system, and banks, consumer proposals and bankruptcies are very close to the same thing: they are seen as insolvency. The difference in the way the two are reported on your credit report is so small that a lot of lenders can’t actually tell whether you actually filed a consumer proposal or bankruptcy. Banks and credit unions are not interested in splitting hairs to figure out the difference. To them, both mean the same thing: instead of repaying your debts as you initially agreed to, you sought court protection and only repaid a small portion of what you owed. You may have had some very good reasons for becoming insolvent, but even for the most compassionate banker will have a hard time helping you until the record of your insolvency falls off your credit report.
Obtaining credit after filing a consumer proposal or bankruptcy is a huge problem for a lot of people. There are things you can do to try and restore your credit score as quickly as possible without paying credit repair companies thousands of dollars, but until the record of your insolvency is removed from your credit reports, obtaining credit can often be challenging.