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Can I get a loan while in a consumer proposal?

Posted on 1 April 2022

Written by Jeff Adiken

If you have filed a consumer proposal, you may find at some point while making your repayments that you want to take out a loan. Maybe you need a little financial boost while making your payments, or perhaps you need some upfront cash for an urgent circumstance or a large purchase. A loan could assist with your finances temporarily, although it is important not to make your debt any worse longer term. Consumer proposals are a great way of reducing your debt by up to 80%, while enabling you to keep your assets. They will also protect you from your creditors and collection agencies. So, can I get a loan while in a consumer proposal? In some instances, it can be difficult to secure a loan given the increased risk associated with a consumer proposal. That said, it is certainly not impossible! In this article, we discuss how you can get a loan while in a consumer proposal, and share some tips on increasing your chances.

What is a consumer proposal?

A consumer proposal in Canada is a legal form of debt settlement, regulated by the Bankruptcy and Insolvency Act. It is an affordable way of reducing your debt by up to 80%, and is an increasingly popular bankruptcy alternative. Filing a consumer proposal over a bankruptcy has a number of different advantages, including the ability to keep your assets. A consumer proposal is filed by a Licensed Insolvency Trustee, who will help you to determine how much you can reasonably afford to pay back each month. Your trustee will then work with your creditors to negotiate a deal that works well for both you and your creditors. You will then repay your creditors a percentage of the overall debt owed each month, with the remainder of your unsecured debt being eliminated. As a highly experienced firm in filing consumer proposals, Spergel has helped over 100,000 individuals become debt free. Unlike other bankruptcy firms, at Spergel you will receive your own trustee to walk you through each step of filing a consumer proposal instead of passing you from person to person.

How is your credit score impacted by filing a consumer proposal?

Wondering ‘can I get a loan while in a consumer proposal’ usually begins with reviewing your credit score. It is no secret that a consumer proposal will impact your credit score, but it is always possible to rebuild your credit score. During a consumer proposal, you will be given a credit score of R7, to indicate to lenders that you have filed a consumer proposal. This does mean you will take an initial drop to your credit score, although this is not as severe as any drop you might experience from filing bankruptcy instead. A consumer proposal will stay on your credit score for three years after your final payment according to Canada’s primary credit bureaus, Equifax and TransUnion. This means that the faster you are able to make your consumer proposal payments to pay off your debts, the sooner you can begin to rebuild your credit score.

How will a consumer proposal affect my ability to get a loan?

As your credit score is lower due to filing a consumer proposal, it can sometimes prove difficult to secure a loan, and to have one approved by a lender. That said, if you are filing a consumer proposal, it is likely that you are struggling financially regardless. Your credit score already may not be in the best shape. You are probably putting a big proportion of your income towards making your consumer proposal payments too. This can also make it difficult to paint a picture of financial security, and will impact your overall credit score. Although securing a loan while filing a consumer proposal is difficult, it is certainly not impossible. At Spergel, our Licensed Insolvency Trustees are here to help with your financial situation. We can review your finances and recommend the best way to become debt free. Of course, if you wait until after your consumer proposal is complete, it will considerably increase your chances of securing a loan.

How can I get a loan while in a consumer proposal?

If you can share evidence that your consumer proposal has made you much more responsible with your finances, you could well secure a loan while in a consumer proposal. You should consider the following points to ensure you do not get yourself stuck in another cycle of debt:

  • Find a good lender. Many lenders can be strict about the criteria you must meet in order to secure a loan. This can make it tempting to gain a loan from an untrustworthy, poor quality source. Make sure you do not follow this path, as it can make your overall financial situation much worse.
  • Be wary of scams. Any lender who wants to approve you easily may well be a red flag. This is because having a low credit score can make lenders increase the interest on your loan when they choose to make it much more expensive than it should be in the long term. There are scams too whereby vulnerable borrowers are targeted in order to steal their financial information.

What will I need to do to secure a loan while in a consumer proposal?

If you find a reputable lender willing to consider lending to you, there are a few things to expect when filing a consumer proposal. Here are a few key steps:

  1. Your credit score and financial situation will be assessed.
  2. You will need to share evidence of having a stable, steady income.
  3. Your lender will want to speak to your Licensed Insolvency Trustee to discuss how successfully you have made your consumer proposal payments to date.
  4. Your trustee will help you to ensure you do not take out a loan that you simply cannot afford to repay.
  5. You will need to prove to your Licensed Insolvency Trustee and lender that you will be able to manage making both loan and consumer proposal payments.

Ultimately, although a challenge it is certainly possible to secure a loan while in a consumer proposal. You should speak to a Licensed Insolvency Trustee beforehand in order to discuss your options and to ensure you will not be making your financial situation any worse.

If you have more questions around ‘can I get a loan while in a consumer proposal’, book a free consultation with a reputable Licensed Insolvency Trustee at Spergel. We will advise you on the best pathway to a life free from debt, no matter what your circumstances. We are here to support you with your financial issues, no matter how bad you may feel they are. Reach out today – you owe it to yourself.

Jeff Adiken

Jeff Adiken is a Certified General Accountant and Chartered Insolvency and Restructuring Professional with over 18 years’ experience as an LIT (Licensed Insolvency Trustee). He also manages all of Spergel's personal insolvency offices and is our resident expert on credit card debt and debt-free living. When his 'manager hat' comes off at the end of the day, Jeff is happiest spending quality time with his family at home.

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