How Long a Consumer Proposal Stays on Your Credit

A consumer proposal damages your credit. Anyone who tells you otherwise is selling you something. What matters is how much, for how long, and what you are comparing it against. The honest comparison is almost never a clean credit report.

How long does a consumer proposal stay on your credit report?

Three years after you make the final payment, or six years after the proposal starts, whichever comes first. That is the rule the Financial Consumer Agency of Canada publishes. It counts the six years from the date you sign the proposal. Each bureau words its own version.

• Equifax removes it three years after you have paid off everything in the proposal, or six years from the date it was filed, whichever comes first. That wording is on Equifax’s own page.
• TransUnion removes it three years after you complete the proposal, or six years from the date you defaulted on the accounts, whichever comes first. That is TransUnion’s rule as quoted by CAIRP, the professional association of Licensed Insolvency Trustees.
• Credit cards and other revolving accounts in the proposal are usually rated R7, which means a formal arrangement to repay. Those entries usually clear on a similar schedule. Check both reports afterwards to make sure they did.

So the clock can run from when you finish, not from when you file. If you finish in less than three years, the mark leaves your report earlier. You are allowed to pay it out early, and that can move the date forward.

An example, using the Equifax rule. Say your proposal runs the full five years. Three years after the last payment would be year eight, but six years from filing comes first, so it drops at year six. Now say you pay it out in two years. Three years after that is year five, which comes before year six, so it drops at year five. Same debt. The only change is when you finished. At TransUnion the six years count from the date you defaulted, which is usually before you filed, so its date can come earlier.

How it compares with everything else on a report

People weigh a proposal against a clean slate. Weigh it against what is on the report already, and against the alternatives. These figures come from the federal agency, and the collection start date comes from Equifax.

Look at the collection and judgment rows. Those are what a person who does nothing collects, one after another, each with its own six-year clock. A proposal stops new collection marks from piling up on the debts it includes, and the proposal itself has a known end date on your report.

How it compares with bankruptcy

A first bankruptcy stays on your record for six to seven years after discharge, depending on the bureau and the province. Accounts in a bankruptcy are usually rated R9, the lowest rating. Accounts in a consumer proposal are usually rated R7. So a proposal carries the lighter rating code, and for most people it is the shorter mark. Neither one is invisible.

The fuller comparison, including what you keep and what you pay, is on our consumer proposal or bankruptcy page.

Does a consumer proposal affect your credit score?

Yes. It falls, often by a lot. But look at where it is falling from. By the time most people come to a proposal, the report already carries missed payments, accounts in collection, and sometimes a judgment. Each one has its own six-year clock, and new ones keep arriving for as long as the debt goes unpaid.

A proposal puts a stop to that. It trades an open-ended problem for one with a date on it. That is the real trade, and it is why you can start to rebuild your credit while the proposal is still running.

Can you keep a credit card after a consumer proposal?

Not one that is included. Every unsecured account in the proposal is closed. Expect the same bank to close a card with a zero balance too. Banks often close the other credit accounts you hold with them.

A card from a bank you owe nothing to is a different question, and sometimes the answer is yes. Do not assume it. Every file is different. Ask us before you file. If you find out afterwards, you can be left without a card when you need one, for example to rent a car.

What about your mortgage?

Your mortgage is a secured debt. It is not in the proposal, and as long as you keep up the mortgage payments, the proposal does not change the mortgage itself. The equity in your home can still affect what your creditors will accept. The question comes at renewal. Some lenders renew a mortgage during a proposal. Some will not, and you may need to find a lender that will, sometimes at a higher rate. That is not guaranteed. If your renewal is within the next two years, tell us the date at the start. It changes the advice we give you before you file.

Rebuilding, and when to start

Start during the proposal, not after it. If you wait until the final payment, you throw away years of history you could have been building.

• Get a secured credit card. You put down a deposit, and the limit is usually based on it. Most secured cards report to the bureaus like any other card, and that is the whole point, so ask the issuer before you apply. Use it for small things and clear it in full every month.
• Never carry a balance while you rebuild. How much of the limit you use matters more than the limit itself. A card used to ten percent and paid off reads better than one used to ninety.
• Check both reports once a year. They are free, and errors are common. If an account that was included in your proposal still shows a balance owing after the proposal is complete, it may be an error. Ask your trustee for the paperwork that shows it was included, and ask the bureau to correct it.
• Keep the rebuilt card open afterwards. Age of credit counts, and closing your oldest account can shorten your credit history over time.

What it does not touch

It is not a criminal record, and for most work it will not cost you your job. Some regulated roles do ask, particularly in finance and in positions that need bonding or a security clearance. If you are in one of those, check your own professional rules before you file, not after. How you answer their questions matters.

The insolvency record itself is public. The Office of the Superintendent of Bankruptcy keeps a searchable database, and anyone willing to pay the search fee can look. The record stays there after the proposal leaves your credit report. You should hear it from us rather than find out on your own.

Questions people ask

Does paying it off early change when it comes off?

It can. The three-year clock at both bureaus runs from when you complete the proposal. At Equifax, finish in year two and it is gone in year five instead of year six. At TransUnion the six-year limit counts from the date you defaulted, so the gain from finishing early can be smaller or nothing.

What does R7 mean?

R7 is the code a lender puts on a revolving account, such as a credit card, that is being repaid under a formal arrangement, which is what a consumer proposal is. R9 is the code for bad debt, such as an account written off or included in a bankruptcy. R1 is paid as agreed. The R7 usually stays on each account for about as long as the proposal stays on your report.

Will the proposal show up if a landlord or an employer checks?

On a credit check, yes, while it is on the report. Most employers do not run one. Landlords often do. How a landlord reads a proposal with payments made on time is up to that landlord.

Is a proposal better for my credit than a bankruptcy?

In two ways. It carries the lighter rating code, R7 against R9, and for most people it leaves the report sooner. Your score can be at the bottom either way while the mark is new. It is not better for your credit than paying the debt in full, if you can. If you cannot, that comparison is not the one in front of you.

The short version

Three years after you complete it, or six years at most, with the lighter rating code of the two routes, starting from a report that is usually already damaged, and you can start rebuilding in the first month. That is the real cost. For most people, it is smaller than the problem it replaces.

Will a consumer proposal affect your mortgage renewal?

It can, but the proposal does not end your mortgage. You can generally keep your house if you keep making the mortgage payments. Under section 66.34 of the Bankruptcy and Insolvency Act, once a consumer proposal is filed, no one may terminate or amend an agreement with you, “including a security agreement”, or demand accelerated payment, “by reason only” that you are insolvent or filed a proposal. The exception is that the protection ends if the proposal is withdrawn, refused by the creditors or the court, or annulled.

The same section says it does not require “the further advance of money or credit.” So the law stops your lender from calling the mortgage because of the proposal. It does not make the lender offer you a new term. That is why the renewal date is the moment to plan for.

What happens at renewal

If your mortgage is with a federally regulated lender, such as a bank, it must send you a renewal statement at least 21 days before your term ends. It must also tell you 21 days before the end of your term if it will not renew. That is the rule the Financial Consumer Agency of Canada publishes. Do not wait for that letter. Ask your lender early what it will offer you.

Getting a mortgage with a consumer proposal

If your lender will not renew, or you want a new mortgage later, a new lender has to approve your application. The same FCAC page says a new lender may use different criteria than your original lender. It also lists switching costs, such as discharge, registration and appraisal fees. Ask for those numbers before you agree to anything.

The equity in your home is part of this picture too. If you want to know how to protect your assets from creditors in Ontario before you file, bring your renewal date to the first conversation.

Where we fit

Get Total Debt Relief is a debt consulting and representation firm, not a Licensed Insolvency Trustee. Only a Licensed Insolvency Trustee can file your documents for a consumer proposal or a bankruptcy with the Superintendent of Bankruptcy. However, he is not the only one you should get your information from. Unlike a Trustee, we look to preserve your equities and assets, not liquidate them. What we do is make sure you only pay what you have to pay, not what someone thinks you can pay. We use every tool available to make sure you protect your home, your business and other equities as well as Spousal rights. Once you’re ready to move forward with whichever process you choose, that’s when it’s time to move on to the selection of a Trustee. Please keep in mind that if for any reason, you have to deal with a legal matter during your Bankruptcy or Proposal, a Trustee can NEVER legally represent you. However, he CAN act against you. Choose your representation wisely!

You can read how a consumer proposal actually works.

DISCLOSURE:

Get Total Debt Relief is a debt consulting and representation firm. We are not a Licensed Insolvency Trustee, and we are not connected to the Canada Revenue Agency or any government body.

Only a Licensed Insolvency Trustee can file your documents for a consumer proposal or a bankruptcy with the Superintendent of Bankruptcy.

OUR SERVICE:

However, any Trustee you choose can’t legally represent you over your Creditors nor can he give you any advice that will benefit you over your Creditors. The Trustee’s job is to maximize how much he can get from you and your estate for the benefit of your Creditors and the more he collects in a Proposal, the more he makes.

What we do is the work before the filing and the path you choose will come from the advice and information that goes with it. More importantly, we use tools that are not available to the Trustee because of who’s interests he represents. We go through your whole situation with you. We answer your questions, for as long as it takes and as many times as you need to ask them. Every consultation is free and if or when you decide to move forward, you’ll know which option best suits you, your family and or your business. And, unlike the Trustee, we will NEVER use the information you’ve given us against you in Court. The bottom line is that we don’t look to liquidate your assets and equities, we look to protect them.

Every consultation is free, and you can call as many times as you need. Call 647-276-8844 or talk to us.