While bankruptcy remains on a credit report for about seven years after the date of discharge, a consumer proposal remains on a credit report for three years after completion or 6 years after it was filed. As such, a consumer proposal might let you build a better credit score faster, depending on your exact financial situation and ability to pay your debts.
Regardless of the negative effect on your credit after a consumer proposal, it still offers you a fresh start with your finances. Moreover, it gives you the chance to begin the process of repairing your credit faster than bankruptcy
Life After A Consumer Proposal: What To Expect
Your goal with a consumer proposal is to meet all your obligations and make payments as specified in the agreement. But once you pay down your consumer proposal, what happens next?
What Happens After You Pay Off Your Consumer Proposal?
Once you’ve paid off your consumer proposal, you will receive a Certificate of Full Performance, which proves that you’ve met your obligations and completed the proposal. At this point, your debts will be discharged. That means you’ll no longer be tied to the debt and won’t have to make any more payments to your creditors.
Your Licensed Insolvency Trustee (LIT) will ensure that your creditors receive the money they’re owed according to the consumer proposal. You’ll then receive a Statement of Receipts and Disbursements, which lists your creditors and the amounts they received.
Can Your Creditors Call You After A Consumer Proposal?
Once your consumer proposal is paid off and you receive your Certificate of Full Performance, your creditors are no longer allowed to call you to collect debts that were part of the proposal. If you continue to be contacted by a creditor, call your LIT, who will speak with the creditor on your behalf. Your LIT will inform the creditor that your consumer proposal has been fully repaid and that the debts have been satisfied.
If the creditor continues to call you despite having been informed by your LIT to stop, you can file a complaint with the provincial government.
What Documents Should You Keep After A Consumer Proposal?
You will receive a few documents during the consumer proposal process, which you should retain for your records. These documents include the following:
Notice of Consumer Proposal. This initial set of documents specifies the following:
- Consumer proposal start date
- List of creditors
- Settlement offer proposed to your creditors
Certificate of Full Performance. This document shows that your debt is forgiven under the consumer proposal settlement and that your creditors are no longer allowed to contact you for payment.
Final Statement of Receipts and Disbursements. This is the last form you’ll get when the consumer proposal is completed, which includes the following:
- Important dates
- Final list of creditors dealt with through the proposal
- much money each creditor received
Things You Should Do After A Consumer Proposal
Once you’ve completed your consumer proposal, you’ll want to build and maintain a healthy financial and credit profile following a consumer proposal.
Here are a few important things to do once your consumer proposal is complete:
Get A Copy Of Your Credit Report
It’s important to check your credit report to ensure that your credit report reflects the date of your consumer proposal completion. The remark will remain on your credit report 3 years after its completion. You’ll want the date of completion reported as soon as possible, as your credit score can really start to improve once the consumer proposal is removed from your credit report.
Start Working On Your Credit
The best and most effective ways to build healthy credit is to pay all your bills on time, keep credit card expenditures to less than 30% of your credit limit, and avoid having too many new credit accounts. Developing these healthy habits will help you build good credit, especially once your consumer proposal is over and no longer appears on your credit report.
Work On Your Overall Financial Health
While timely bill payments are a good thing, taking on too many credit products to try to rebuild them could have a negative effect on your finances.
The last thing you want to do is find yourself buried under an unmanageable pile of debt, which is likely what got you to the point of having to file a consumer proposal in the first place. Instead, focus on saving money and budgeting. Use budgeting apps to make managing your finances easier and more effective. The better you are at handling your finances, the less likely you’ll wind up needing a debt management plan in the future.
How Long Does It Take To Rebuild Credit After A Consumer Proposal?
It will take at least 3 years or so to start rebuilding credit following the completion of a consumer proposal. As mentioned, a consumer proposal can remain on your credit report for at least 3 years or 6 years after filing the proposal.
You’ll likely need to wait until after your consumer proposal is complete before you can start rebuilding your credit. As long as you’ve got an R7 rating on your credit report, rebuilding your credit in full probably won’t be entirely possible.
You can start making improvements in your financial life by developing good habits and using a secured credit card responsibly. But the proposal will need to be removed entirely from your credit report before you can fully repair your credit.
Can You Build Credit Faster By Paying My Consumer Proposal Early?
You can pay off your consumer proposal early without being subject to early repayment penalties. The benefit is that you can get rid of your debt sooner, and your credit report will be cleared of the consumer proposal information earlier. As such, you can start rebuilding your credit score faster.
This is a huge advantage and one that you should consider, especially if you’re financially able to repay the consumer proposal earlier. The sooner you can get your credit report cleared, the sooner you can start rebuilding your credit. Plus, you’ll be in a better position to secure more credit products in the near future.
Keep in mind, however, that building good credit will still take a lot of time, so be patient while you work towards making better financial decisions.
Can You Get A Car Loan After A Consumer Proposal?
It’s possible to get a car loan after a consumer proposal, but it may require extra effort to get approved. In fact, it may even be possible to get a car loan while the consumer proposal is still in effect. There are auto dealerships and lenders who work specifically with Canadians who are under a consumer proposal or have just been discharged from one.
In order to get approved for an auto loan after a consumer proposal, you will need to have a steady job with a sufficient income, a low debt-to-income ratio, and evidence of timely consumer proposal payments. In addition, you will likely have to come up with a sizeable down payment to be used upfront to secure the loan.
Can You Get A Personal Loan After Consumer Proposal?
Like car loans, it is also possible to get approved for a personal loan after you’ve had your consumer proposal discharged. The same factors apply in this case, such as an adequate income, low debt load, and proof of timely consumer proposal payments. That said, it’s likely that you will be charged a higher interest rate compared to loans given to those with a high credit score and no history of a consumer proposal.
Can You Get A Mortgage After A Consumer Proposal?
Getting approved for a mortgage can be tough even if you have good credit and your credit report is clean. It can be a challenge to secure a home loan if your credit rating is poor. Ideally, your credit score should be above 680 in order to increase the odds of getting approved for a conventional mortgage. Your goal is to achieve at least that number in order to make it easier for you to secure a home loan.
That said, it is still possible to get approved for a mortgage even if your score falls below 680. There are several lenders out there who work exclusively with low-credit consumers. These alternative lenders will consider your home loan application as long as your previous debts have been cleared and you are making efforts to rebuild a positive credit rating.
Further, you should make every effort to save up for a hefty down payment amount. Lenders will want to see a large down payment in order to offset your low credit score. Ideally, at least 10% to 20% should be saved up in order to reduce the loan amount that you would have to take out and increase the odds of mortgage approval after a consumer proposal.
Life After A Consumer Proposal: How To Build Good Credit
A consumer proposal can negatively affect your credit score, however, there are ways to rebuild your credit after a consumer proposal. By making smart financial choices and taking advantage of credit-building products and programs, you can slowly build good credit over time.
Here are a few ways to build healthy credit after a consumer proposal.
Get A Secured Credit Card
If you’ve recently gotten out of a consumer proposal, it can be nearly impossible to get approved for a conventional credit card. But getting a secured credit card is a lot easier, even after a consumer proposal, because you don’t need good credit or a high income.
All you need is a small deposit, which serves as your credit limit. You can then spend against your secured credit card, as long as you stay under your credit limit. Your timely repayments every billing period will be reported to the credit bureaus, which will help you gradually improve your credit score.
Eventually, you should be able to get approved for a traditional unsecured credit card.
Build A Positive Payment History
Your payment history plays the most important role in your credit score. A history of timely payments will help build very good credit, which is why it’s crucial that you meet all bill payment due dates every billing cycle.
If you have access to credit products after a consumer proposal, use them responsibly to build a positive credit history. Plus, paying your bills on time helps to establish healthy financial habits.
Use A Savings Loan
While qualifying for a regular loan may not be possible after a consumer proposal, you could qualify for a savings loan. A savings loan is a unique type of financial product that is designed to help Canadians build good credit.
With a savings loan, you won’t receive any money upfront. Instead, you’ll make payments to the lender who will report each one to the credit bureaus. After the loan term ends, you’ll have established a good credit history, as long as you’ve made all payments on time.
Moreover, at the end of the loan term, the lender will give you back the installment payments you made minus interest and fees.
Get An RRSP Loan
After growing a savings account, you may want to consider investing in an RRSP. Your financial institution may consider giving you an RRSP loan after you’ve shown that you’re responsible enough to build savings and make timely payments with a secured credit card.
With an RRSP loan, you’ll have the opportunity to make even more on-time payments, which can go a long way in improving your credit score. In addition to building good credit, you can also repay most of the loan with the tax perks you can take advantage of by investing in your RRSP.
Bottom Line: Life After A Consumer Proposal
Your credit score will likely suffer after a consumer proposal, but that doesn’t mean that life after a consumer proposal has to be void of any future loans. While a consumer proposal might affect your credit rating for a few years, there’s no reason why you can’t improve your score by taking certain steps. With a good job and some self-discipline, you can gradually get your credit score back up to par, allowing you more freedom when it comes to taking out loans after a consumer proposal.
