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Does a consumer proposal affect my credit?

Posted on 30 June 2022

Written by Chris Galea

For many Canadians, a consumer proposal is an excellent way of gaining debt relief. It is now the #1 insolvency solution in Canada. A consumer proposal in Canada is a legal debt solution set out by the Bankruptcy and Insolvency Act. It is an affordable way to gain debt relief from unmanageable debts, and an increasingly popular bankruptcy alternative. There are plenty of advantages of a consumer proposal including the ability to keep your assets and the generation of a stay of proceedings to permanently stop collection agencies or creditors contacting you. Despite these advantages, many Canadians do not always understand the impact of a consumer proposal and often have some initial concerns. So, does a consumer proposal affect my credit? In this article, we explain the impact of a consumer proposal on your credit.

What is a credit rating?

A credit rating is an estimate used to measure how well an individual meets their financial commitments. This is based on your payment history, as well as the amount of loans you currently have. In Canada, there are two primary credit bureaus – Equifax and TransUnion. Each of these credit bureaus measures your credit score in a slightly different way. Equifax will measure your credit rating on a scale of R1 to R9. A R1 is the most favourable score that suggests you meet your financial commitments on time, whereas a R9 suggests you have declared bankruptcy. If, on the other hand, you have filed a consumer proposal, you will be given a R7 rating, which is a low credit score that will remain until the end of your consumer proposal.

How is a consumer proposal reflected on my credit report?

A consumer proposal will be reflected on two different sections of your credit report. When you file a consumer proposal, the Office of the Superintendent of Bankruptcy will notify the credit bureaus that you have filed. You will then have a note in the legal records section of your credit report, along with the date you filed. This will be updated once you have a completion date. Your consumer proposal will also be mentioned in a second section of your credit report. Each of your creditors will report that your account was included as part of a consumer proposal. This is where your credit report will be given a R7 score. This is, of course, better than the credit score given for a bankruptcy.

How long will a consumer proposal stay on my credit report?

Generally speaking, your account information will be cleared from your credit report six years after the last activity – this could be your last payment or the date you filed depending on the creditor. All other credit activities are broken down on your report into line items, each with a score from 1 to 9. A 1 means you have no outstanding payments, and 2-5 indicates how many months you are behind, although late payments will remain on your credit report for years. A 7 will usually indicate credit counselling or a consumer proposal, 8 a repossession, and 9 a bankruptcy. A 7 will stay on your credit report for 3 years from payment in full, and an 8 or 9 will stay for 6 years from the last activity, including debt settlement or repayment. A consumer proposal will therefore remain on your credit report for 3 years from its full repayment, and it can be paid in full at any time, or 6 years from the date you filed – whichever comes first.

Does a consumer proposal affect my credit?

The negative impact on your credit report is one of the disadvantages of a consumer proposal. The impact is much less, however, than that of a bankruptcy. Having a poor credit report can create challenges when it comes to borrowing more money. This is because lenders and creditors could consider you to be high risk. If you can get credit, it will likely be expensive as lenders will not be able to offer the low interest rates they would for those with good credit scores. For some job roles – particularly those in finance – it may be difficult to get a new job if they require a credit check against you. Landlords, utility companies, cell phone companies, and insurers all may want to consider your credit history when evaluating your application. Despite these setbacks, it is always possible to work on rebuilding your credit score. Taking out a secured credit card can help you to rebuild your score. At Spergel, we can also help you with credit counselling to ensure you know how to manage your credit once you have been discharged from your consumer proposal.

If you have questions on ‘does a consumer proposal affect my credit?’, speak to a Licensed Insolvency Trustee. At Spergel, we have a 99% acceptance rate on any consumer proposals we file. We can answer all your questions on consumer proposals and your credit report. Unlike other debt relief firms, you will be assigned your own trustee to walk you through every step of the consumer proposal filing process. Book a free consultation today.

Chris Galea

Chris Galea

Chris Galea is a Chartered Accountant and Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also our resident expert on tax debt, COVID debt, and the region of Saskatchewan, Canada. When he’s not at the office educating people about bankruptcies and consumer proposals, Chris is playing pick-up hockey with his friends, spending time with his family, and learning Spanish!

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