Which is Better For Your Credit Report? Consumer Proposal or Bankruptcy?


Category: Consumer Proposal (6) comments

The fact that you filed a consumer proposal will stay in the legal section of your credit report for up to three years after you complete your proposal. This is in contrast to the 6 years that a bankruptcy will be reported.

bankruptcy or consumer proposal and credit report

Of course the comparison is not that simple.  A consumer proposal will run anywhere from 3 to 60 months.  You may be bankrupt for anywhere from 9 months to 36 months (or longer if you don’t complete your duties).

The real question that needs to be asked is whether a consumer proposal looks better or worse than a bankruptcy on your credit report.  The truth is they are about the same. If the only reason you are opting for a consumer proposal instead of filing for bankruptcy is because it looks better on your credit report than filing for bankruptcy, you should think again.  An argument can be made that if you completed your bankruptcy in the minimum amount of time (usually 9 or 21 months) and then started saving you may repair your credit faster than if you filed a 5 year proposal. This is a tricky comparison however. Its not so much what type of insolvency filing you choose more than it is:

  • how well you manage your finances after your bankruptcy or proposal;
  • how fast you begin to save so you can repair your credit after filing;
  • how wisely you use credit once it is available to you again.

I am a great proponent of consumer proposals – in about 2/3 of all the cases that I see a consumer proposal is the correct solution to deal with peoples’ debts.  For the other third, bankruptcy makes more financial sense.  All I am really trying to say is don’t base your decision of whether to file a consumer proposal or bankruptcy on how the credit reporting system works.  For all intents and purposes, the credit reporting system treats consumer proposals and bankruptcy the same.

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  1. George

    Come this july ill be paying off my consumor proposal of $15 .000 with a second morgage.. My 1st morgage is in great standings with never missing a payment along with utilities..When this is finalized what is the quickest way to rebuild credit score over the next 3 years!! I do not want any credit cards or lines of credit since it got me in this mess to begin with…Love living of cash the past 2 years!! thank You!

    Reply
    1. Ted Michalos Post author

      George – just making all of your mortgage payments will go a long way towards rebuilding your credit. As a rule, lenders are looking for two things after a proposal or bankruptcy – they want to see at least $5,000 worth of credit being properly serviced on your report (that means you are making all of the payments); they also are looking for at least two different credit items on your report. That’s where something like a secured credit card comes in. With a secured card, you put $500 or more on deposit with a bank and they issue a credit card for the same amount. As long as you make your payments the deposit just sits there earning interest. If you miss a payment they tae it out of the money on deposit and cancel your card. After 18 to 24 months the bank will tell you they no longer require the money on deposit… That’s when you know your credit looks good again!

      Reply
  2. Terry

    So, my wife and I have just fulfilled our Consumer Proposal responsibilities in full. We have a credit card, which we got during our proposal, which has been paid faithfully for the last 5 years that we`ve had it. We also have money in both our TFSA as well as our chequing account. (at least $1500 in each at most times)
    here is my question;
    I am not expecting any guarantees, but IN YOUR OPINION, what are the chances of getting an auto loan from a bank?
    And if you are not feeling good about the odds, we are curious as to what you would suggest as to financing a new, or newer pre-owned vehicle.

    Reply
    1. Ted Michalos Post author

      Congratulations on completing your proposal. Auto loans are one of the easier forms of new credit to qualify for after (or even during) a consumer proposal, particularly if you have a deposit. Shop around – don’t let anyone put you in a high interest loan without checking more than one source. In fact, go in for pre-approval first. If you are approved at your bank (and you should be) don’t accept the deal until you look to see if there are any better promotions out there directly from the auto finance companies. In the fall there are usually some very good deals as they try and clear out the current year’s inventory to make room for the new model year…

      Reply
  3. mari d.

    My son-in-law has just signed for a consumer proposal, and is moving from his apartment without securing another. He’s going to stay with his parents for a month or so. Will he have problems getting another apartment, and if so, what should he do?

    Reply
    1. J. Douglas Hoyes

      Hi Mari. Whether or not he can get another apartment depends on his future landlord. If he is renting a basement apartment from the owner upstairs, and they don’t do a credit check, the consumer proposal will have no impact on him; they will only care about first and last month’s rent, and his income. If he is renting from a big corporation that does credit checks, the consumer proposal may harm his chances. However, since the reason he filed a consumer proposal was because he had a lot of debts, it is possible that his credit was in poor shape before, so it may be no different now from the landlord’s perspective.

      As a general rule, if possible, it is advisable to secure a new apartment before filing a consumer proposal, but since that is not an option in this case he may either need to rent from a private individual, or he may require a co-signer or guarantor (his parents) to get the apartment.

      Reply

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