Will my Credit Rating be Better in a Consumer Proposal?

The answer is:  sort of.  This is a bit of a sticky point.  In a consumer proposal you are repaying a portion of your debt, voluntarily, and this should have some positive impact on your score, versus a bankruptcy.

In practice, in all honesty, it’s not a huge difference.

If you file a personal bankruptcy, it should remain on your credit report as an R9 (worst possible rating) for seven years after your discharge.  For most people, a discharge can be obtained in 9 to 21 months, so essentially you will be dealing with it on your report for up to 9 years.

In a consumer proposal, the rating you get should be R7. (In some cases it appears as R9 until completion then changes to R7).  This rating stays on your credit report for three years once you’ve completed your proposal.  So, if you file a proposal for 48 months (4 years) your credit will be affected by it for a total of 7 years, versus 9 in bankruptcy.  It’s not a huge difference at the start, but I can guarantee once you reach the seven year mark, you’ll be happy you filed that proposal!

A couple of other points:  You are allowed to pay off your proposal as soon as you are able to, so if you can pay off a four year proposal in three years, your credit rating will only be affected for a total of six years.

Also, note that a second bankruptcy can last for three years, depending on income, and stays on your credit report for FOURTEEN years after discharge, a potential total of 17 years.  So, if you have been through bankruptcy in the past, let’s look at a proposal for you this time around.

Lastly, consider how your credit rating is today.  Will ignoring the situation any longer repair your credit any sooner? Probably not.

Sometimes, it’s not what the solution will do to your credit, it’s what options the solution provides. Filing a consumer proposal gives you some flexibility to begin to repair your credit for the long run.

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