How Long Does a Consumer Proposal Stay on Credit Report?

If you’re struggling with debt and considering a formal solution to help you repay what you owe, you may be considering a Consumer Proposal. But what exactly is a Consumer Proposal and how long will it stay on your credit report and affect your credit score?

A Consumer Proposal is a legally binding agreement between you and the people you owe money to (your creditors) to consolidate your unsecured debts into a single monthly payment that’s better suited to your circumstances. But like most debt solutions, it can have a lasting impact on your finances.

This guide will outline the impact of a Consumer Proposal in more detail, including how long it stays on your credit report, how it affects your credit score, and how to rebuild your credit score after exiting your arrangement.

What is a Consumer Proposal?

A Consumer Proposal is a legally binding agreement between you and your creditors to make regular payments towards your debt for a set period (typically five years). There is a minimum debt level of $1,000 required.

It is governed by the Bankruptcy and Insolvency Act (BIA), which means it must be administered by a Licensed Insolvency Trustee (LIT). They will review your income and expenses to determine how much you can comfortably afford to pay towards your debt each month.

During a Consumer Proposal, your creditors will be prohibited from taking legal action against you and all interest and charges will be frozen. This will allow you to focus on repaying your debt without any unnecessary distractions.

Once you’ve made your final payment, your remaining debt will be written off – even if you’ve only repaid a portion of it – and you won’t be asked to make any more payments towards it.

How does the Consumer Proposal process work?

There are certain steps you must follow when you enter a Consumer Proposal. We’ve outlined them below:

Find a Licensed Insolvency Trustee (LIT)

The first step in the application process is finding a Licensed Insolvency Trustee (LIT) to administer and manage your arrangement.

They will review all aspects of your financial situation to determine if a Consumer Proposal is the right solution for you and discuss all available options to ensure you’re making the right decision for your circumstances.

Complete your application

If you decide to proceed with a Consumer Proposal, you’ll work with your LIT to complete your application. They will ask you several questions about your finances to ensure the information provided is as accurate and up-to-date as possible.

The proposal must include the total debt repayable, your monthly payment amount, and the length of your payment schedule.

File your proposal

Once your LIT has completed your application, it will be filed with the court and sent to your creditors for approval.

They will have 45 days to vote on whether they accept or reject your proposal. During this time, you don’t have to make any payments, you’ll be protected from legal action, and interest will stop accumulating on your debts.

Start your arrangement

Once more than 50% of your creditors have accepted your proposal, it will be approved by the court and become legally binding on all your creditors (even those who rejected it).

From this point, you will make monthly payments to your LIT for an agreed period (which can be between sixty days and five years) and all extra fees and charges will be stopped.

How long does a Consumer Proposal stay on credit report?

A Consumer Proposal stays on your credit report from all the main credit bureaus for six years from the date your arrangement starts or three years after you make your final payment, whichever is sooner. This includes your TransUnion and Equifax credit report.

This means that, if your arrangement lasts the standard five years, it will be visible on your credit report for another year after you’ve been discharged. This can make it difficult to get approved for credit even after you’ve officially left your arrangement.

In other words, the sooner you’re able to repay your debts and finish your arrangement, the sooner you’ll be able to start rebuilding your finances.

What rules do I have to stick to during a Consumer Proposal?

During a Consumer Proposal, it’s important to stick to certain rules to ensure you’re discharged from your arrangement as expected. Here are the main rules you should follow:

Attend two credit counselling sessions

In order to receive a discharge from your Consumer Proposal, you must attend two mandatory credit counselling sessions. If you don’t attend both sessions, you won’t be discharged from your arrangement.

These sessions are designed to help you know how to better manage your money going forward and avoid further debt. They will be scheduled in a way that gives you time to put what you learned in the first meeting into practice before the second meeting.

Avoid further credit if possible

Although there is nothing stopping you from applying for further credit while you’re in a Consumer Proposal, you’ll likely struggle to find a lender willing to approve you for a loan.

Remember, your arrangement will be visible on your credit report and your credit score will be damaged for at least six years. This can affect your creditworthiness and make lenders hesitant to enter into a credit agreement with you.

How does a Consumer Proposal affect my credit score?

The debts listed on your credit file are used to generate your credit score. Like all debt solutions, a Consumer Proposal will be listed on your credit file from each credit bureau and negatively affect your credit score.

In Canada, debts included in a Consumer Proposal are listed as R7, which means you have agreed to settle them with your creditors. For perspective, a credit rating of R1 (the highest) means you have no debt while R9 usually indicates that you’re bankrupt (the lowest).

So while a credit rating of R7 is towards the higher end of the scale, it isn’t the worst credit rating you could have.

Remember, while it’s not impossible to get further credit while you’re in a Consumer Proposal, you may have to reach out to a specialist lender and you’ll more than likely face higher interest rates to cover the extra risk to your lender.

Is a Consumer Proposal right for me?

There are certain eligibility criteria you must meet to qualify for a Consumer Proposal. This can help you know if it could help you deal with your debt or if another solution would be better suited to your circumstances.

For example, you must be filing for yourself or on behalf of an individual (businesses are not eligible) and your debts must not exceed $250,000.

You must also be able to prove that you’re insolvent (unable to pay your bills as they’re due) and have a stable source of income to allow you to make regular monthly payments towards clearing your debt.

How can I rebuild my credit history after a Consumer Proposal?

A Consumer Proposal affects credit rating and makes it difficult to get approved for credit, but only for a limited time. There are various things you can do to rebuild your credit rating after you’ve been discharged from your arrangement, including:

Register to vote

If you haven’t registered to vote at your current address, it’s recommended you do so as soon as possible. This confirms your address to lenders, boosting your creditworthiness and helping you rebuild your credit history.

Registering to vote also helps lenders see that you’re not trying to commit identity theft or fraud.

Get a credit card

Although a credit card might sound counterintuitive while you’re trying to rebuild your finances, using it responsibly can show lenders that you can be trusted to handle credit.

Your circumstances will determine whether you’d be better suited for a secured credit card or an unsecured credit card.

Pay bills on time

The best way to rebuild your credit history is to pay your bills in full as they’re due.

The longer you maintain a positive payment history, the more creditworthy you will appear and the more your credit score will increase.

Conclusion

A Consumer Proposal is a formal solution that can help you deal with your unaffordable debt and better navigate the financial debt recovery process.

It can last anywhere from sixty days to five years but will stay on your credit report for six years from the date it begins or three years from your final payment, whichever is sooner.

There are various things you can do to improve your credit score after a Consumer Proposal, such as registering to vote and paying your bills on time.

Key Takeaways

• A Consumer Proposal is a legally binding agreement between you and the people you owe to repay your debt in a series of manageable monthly payments
• Consumer Proposals stay on your credit file for six years from the date they begin or three years after your final payment, whichever is sooner
• During a Consumer Proposal, you must attend two credit counselling sessions to help you improve your money management skills and avoid debt
• Consumer Proposal debts are labelled as R7 out of a scale of R1 to R9 on your credit report
• A Consumer Proposal might be right for you if you have debts of less than $250,000 and can afford to make regular monthly payments towards what you owe