Mathieu Roy
Licensed Insolvency Trustee and Financial Recovery AdvisorWhen financial obligations accumulate and repayment choices seem limited, filing a consumer proposal can provide genuine assistance. An alternative to personal 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.
What Is a Consumer Proposal?
A consumer proposal is a settlement made between you and your creditors. It’s a legal procedure overseen by a trustee and governed by the Bankruptcy and Insolvency Act. It allows you to reduce your total debt or spread out regular payments over a maximum period of five years. In return, you agree to make monthly payments to cover a portion of your outstanding debts.
While this approach may offer financial relief, it does have its drawbacks and can affect your credit score. Furthermore, only unsecured debt, with the exception of student loans, can be included in a consumer proposal.
Once you finalize all payments, you will receive a completion certificate, certifying that you have fulfilled the conditions of your consumer proposal. This means that you no longer have any obligation to your creditors for the debts included in the proposal.
The Consequences of the Consumer Proposal on Your Credit Score
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 informations:
- Proposal submission date
- End date of the consumer proposal
- Debts included in the proposal
A consumer proposal affects and stays on 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?
If you do not wish to file for bankruptcy, opting for a consumer proposal may be a viable solution to your debts. 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.
If you do not wish to file for bankruptcy, opting for a consumer proposal may be a viable solution to your debts. 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.
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