Four things to know about how a Consumer Proposal impacts your credit

If you’re struggling with unmanageable debt and worry you’ll never break the cycle of living from one bill to another, a Consumer Proposal may help you get the financial fresh start you deserve.

This is the third in a five-part blog series about what Consumer Proposals are, how the process works, and whether they might be the right solution for you to get permanent relief from your unsecured debt.

1. A Consumer Proposal is less damaging to your credit than Bankruptcy

Consumer Proposals are reported as R7 (second worst rating) on your credit report, whereas Bankruptcy is reported as R9 (worst rating). Some future creditors may view Consumer Proposals and Bankruptcies similarly, but on average most view a Consumer Proposal more favourably.

2. A Consumer Proposal may not stay on your credit report for as long as Bankruptcy

A Consumer Proposal will stay on your credit report for the lesser of (1) three years after you receive your Certificate of Full Completion or (2) a maximum of six years from the date of filing.

If you repay your Consumer Proposal through a single lump sum, any record of your insolvency will disappear in three years (versus six to seven for a first Bankruptcy). Conversely, if you repay your Consumer Proposal over five years, a record of your insolvency will only remain for one year thereafter.

3. You can keep credit cards with nil balances in a Consumer Proposal

Any unsecured creditors whom you do not owe money to are not included in your Consumer Proposal. In most cases you can keep any credit cards that do not have outstanding balances — and you may apply for new credit during your Consumer Proposal should you wish to do so. Though, it may be difficult to find a willing lender, and we discourage taking on any additional credit throughout the Consumer Proposal period.

4. A Consumer Proposal does not impact your secured creditors

Normally, secured creditors are not affected by a Proposal. In most instances, you will continue to make payments to the secured creditors as per your usual arrangements. However, in your Proposal you may choose to surrender and return your secured assets and stop making payments to secured creditors. In these circumstances, any resulting shortfall that may arise from the sale of the asset held as security by the secured creditor will be included as an unsecured debt in your Proposal. This means you will not be responsible for any further payments to the secured creditor.