Once you complete your consumer proposal, all of your prior debts will be discharged. You can continue to apply for new credit, such as credit cards and car loans. You can now enjoy the freedom of being debt free and have hopefully made changes to your finances to avoid getting into too much debt again.
A consumer proposal is a legally binding agreement between you and your creditors to pay back a portion of your debts over a set period of time. If you've recently completed a consumer proposal or are currently in a consumer proposal, you're probably wondering what happens when it's finished and what your life will look like. While a consumer proposal can provide much-needed relief from overwhelming debt, a consumer proposal can affect your credit score. This article will explain what to expect once completed and how to improve your credit rating.
Consumer Proposal Completed
Once you've completed your consumer proposal, you'll receive a Certificate of Full Performance from your Licensed Insolvency Trustee. This certificate indicates that you've fulfilled all your obligations under the proposal, and your remaining debts have been discharged. The Trustee will notify all of your unsecured creditors that your consumer proposal has been completed by sending the Final Statement of Receipts and Disbursements and their final dividend cheques, which will let them know the consumer proposal process has been completed.
It is essential to keep a copy of the Certificate of Full Performance for your records to provide proof, if required, to confirm that you completed your consumer proposal. Also, once your consumer proposal is completed, the Office of the Superintendent of Bankruptcy will send a notice to the credit bureaus to let them know of its completion.
How Do Consumer Proposals Affect Your Credit Rating?
A consumer proposal can affect your credit rating negatively. While it's true that a consumer proposal is less damaging to your credit record than bankruptcy, it still shows up on your credit report as "insolvency" for up to three years after you've completed it or six years from when you started, whichever is sooner.
During the consumer proposal, lenders view you as a higher-risk borrower, and you may have difficulty obtaining credit or loans. However, you can immediately rebuild credit after starting a consumer proposal, as you can still apply and have new debt while in a consumer proposal.
Your monthly consumer proposal payments to the Trustee are not reported to the credit agencies, so these payments do not improve your credit score. Only unsecured and secured debts are reported to them and can increase or decrease your credit score depending on if you make your payments on time.
How Long Does a Consumer Proposal Stay On Your Credit Report in Canada?
As previously mentioned, a consumer proposal will stay on your credit report for up to three years after completion or six years from when the consumer proposal started. If you began your consumer proposal in January 2020 and completed it in January 2025, it will remain on your credit report until January 2026. However, if you complete your consumer proposal early, then it could come off your credit record sooner.
Once the minimum period has elapsed from when completed, the credit agencies will remove the insolvency rating from your credit report, and all debts included in the consumer proposal will also come off.
How Do I Know If There Are Reporting Errors in My Credit History?
It's a good idea to regularly check your credit report to ensure all the information is accurate. You can obtain a free copy of your credit report from the credit bureaus in Canada (Equifax and TransUnion) or other third-party providers. Review your report carefully to ensure that all of the information is correct. For example, you want to ensure no missed payments are being incorrectly recorded or any debt listed that should not be there. If you find errors, then this could negatively impact your credit rating. Therefore, you want to correct these errors as soon as possible.
How to Fix Mistakes on Credit Reports after Completion of a Consumer Proposal
If you find errors on your credit report during or after completing a consumer proposal, you can dispute them with the credit bureaus by completing a credit investigation request form. The credit bureau will look into your dispute and make any necessary corrections. You can also notify your Licensed Insolvency Trustee of any errors, and they can contact your creditors to stop reporting missed payments on your credit report.
How Much Does it Cost to Check My Credit Report?
You can obtain a free copy of your credit report from one of the credit bureaus in Canada or third-party providers. If you want to find out your credit score, a fee may be involved. Check with the credit bureaus for more information.
How Long After a Consumer Proposal Can I Get a Credit Card or Credit in General?
You can apply for a credit card or other credit products while still in a consumer proposal. However, your options may be limited, and you may be required to pay higher interest rates or fees. Usually, it may take at least one year before you can be approved for a credit card again.
In the meantime, consider obtaining a secured credit card to help rebuild your credit and later on apply for a regular unsecured credit card.
Why Your Credit History is So Bad After Completing a Consumer Proposal, and What You Can Do About It?
Your credit score may have decreased once you filed a consumer proposal because you defaulted on your debts, and lenders view you as a higher-risk borrower. However, as you rebuild your credit, your credit score can improve, and you'll have more options for credit and loans in the future. You need to show lenders that you can be trusted again before they are willing to lend you money again.
Tips for Rebuilding Credit After Consumer Proposal
Rebuilding your credit after a consumer proposal can take time, but it's not impossible. Here are some tips to help you get started:
Obtain secured credit cards: A secured credit card requires a security deposit, which is collateral for your credit balance. This can be an excellent way to rebuild your credit if you use the card responsibly and pay on time.
Make all your payments on time: Payment history is the most critical factor in determining your credit score. Pay all your bills on time, including credit cards, loans, and car loan payments. If you can't make full payment, at least make the minimum monthly payment.
Keep your credit utilization low: Your credit utilization is the amount of credit you're using compared to your credit limit. Aim to keep your credit utilization below 30% to avoid negatively impacting your score.
Only apply for little debt at once: Better to space out your applications to obtain credit and don't show you are too eager to get new credit, as this can negatively impact your credit score.
Build positive credit history: The longer you have a positive credit history, the better your credit score will be. Consider taking out a small loan or a credit builder loan to help build your credit history.
Consumer proposals can take a long time to complete and will require you to manage your budget to ensure you don't miss any payments. With no more payments, you should have extra money each month to put towards savings and reaching your long-term financial goals. You will also want to continue rebuilding your credit.
Rebuilding your credit after a consumer proposal can take time and effort, but it's worth creating a better financial future for yourself and your family in the long run. Financial stability and improving your credit score can be achieved by following the tips in this article and using credit responsibly. Keep in mind that being patient and persistent is critical. The results will be worth it!
If you are considering filing a consumer proposal or have any questions, contact Litvack Group for a Free Consultation!