Consumer Proposal: Consequences on Your Credit

When financial obligations accumulate and repayment choices seem limited, filing a consumer proposal can provide genuine assistance. An alternative to bankruptcy, it allows you to partially repay your debts and avoid more serious measures. However, this option also has considerable impacts, most notably on your credit score.

The Consequences of the Consumer Proposal on Your Credit Score

Although a consumer proposal can provide financial relief, it may have an impact on your credit report. That’s why it’s essential to fully understand how it may affect your financial future before beginning the process.

Registration in the File

When you file a consumer proposal, it will appear on your credit report even years after completion. Consequently, anyone with permission to consult your file will be able to see the following information:

• Proposal submission date
• End date of the consumer proposal
• Debts included in the consumer proposal

A consumer proposal affects your credit report for three years after the end of payments. Consequently, it may affect your ability to borrow funds even after it has been completed.

Decrease in Credit Score

A consumer proposal lowers your credit rating, making it more difficult to obtain short-term credit. This debt relief option is generally rated R9, indicating that you have reached an agreement with your creditors.

This rating will be assigned to you throughout the entire consumer proposal process. However, you’ll regain the R7 rating once you’ve been released.

In contrast, an R1 rating indicates perfect credit, while bankruptcy results in the lowest rating, R9. An R7 rating can limit access to new loans, as lenders often consider you a higher risk.

Impact on Access to Credit

Securing a loan or credit can be challenging with a consumer proposal in your file. Lenders typically perceive this as an additional risk. Lines of credit, credit cards and mortgage loans become less accessible. If you are granted credit, it will probably come with higher interest rates.

Other Impacts

Some employers and insurance providers consult credit files before offering employment or insurance. A consumer proposal may therefore indirectly affect other aspects of your personal and professional life.

How to Submit a Consumer Proposal?

To file a consumer proposal, start by consulting a Licensed Insolvency Trustee (LIT). The LIT is the only professional who can administer this type of solution in Canada. The trustee will assess your financial situation and decide if this option is right for you. They will explain the associated impacts and costs.

If you decide to proceed, the trustee will prepare the proposal and present it to your creditors. The proposal will detail possible monthly payments and debt repayment terms. Once filed, you will cease making direct payments to creditors. All legal actions and interest on your debts also end.

Your creditors have 45 days to accept, reject or suggest modifications. If the majority of them approve, the proposal becomes official, allowing you to begin payments as per the agreed terms.

If you do not wish to declare bankruptcy, opting for a consumer proposal may be a viable debt solution. While it may lead to a temporary drop in your credit score, it lays the groundwork for financial recovery and stability.

If you have any questions about consumer proposals, contact the M. Roy & Associés team at 1-877-352-6661 or by filling out the online form. The first consultation is always free and confidential. Our team of Licensed Insolvency Trustees and Financial Restructuring Professionals can help you overcome your financial difficulties, rebuild your credit and become debt free.