Credit Rebuilding After Your Insolvency Filing

Are you unsure how to rebuild your credit history and improve your credit score following an insolvency filing in Canada?

Or are you considering working with a Licensed Insolvency Trustee to deal with your debts but worried you won’t be able to re-establish your credit rating again in the future?

Improving your credit score after a Consumer Proposal or personal bankruptcy is easier than you might think. In as little as two to three years you may even have a better credit rating than before you started – and you can get a new mortgage, vehicle financing, credit card, bank loan, etc.! Let us explain…

Credit Scores After an Insolvency Filing

Once your Consumer Proposal or bankruptcy is filed with your Trustee your creditors will be barred from contacting you for payment or adding more interest to your debt; your debts are frozen now, and your credit history will temporarily note your formal filing.

The countdown to this note coming off your credit history is underway when you finish your Consumer Proposal or receive your discharge from bankruptcy:

• A Consumer Proposal will be on your credit history for the lesser of: three years after your Consumer Proposal is finished – OR – six years from the date your Consumer Proposal started.
  • If your proposal calls for payments over five years, the proposal will disappear from your credit just one year after it has been paid off.
• A personal bankruptcy will show on your credit history for six years from the date you were discharged from bankruptcy.
  • If it is not the first bankruptcy an individual has filed, the credit rating impact can be longer.

For many people, these timeframes allow them to clear debts and re-establish their credit score much faster than if they continued trying to pay off their debts without a formal solution.

When your credit history “resets” immediately following your insolvency filing you have an opportunity to establish a positive credit history and build up your credit score, but you don’t have to wait for your Consumer Proposal or bankruptcy to come off your credit history to start getting new credit.

Getting Credit After an Insolvency Filing

Here are some common types of credit people consider as they move forward with their financial affairs and goals after a Consumer Proposal or bankruptcy. Remember, besides credit history, lenders take a holistic view of each client and will often evaluate your income and savings when considering credit applications.

Always be sure you fully understand and are satisfied with all the terms of borrowing before accepting credit, and don’t be tempted to take on more credit than what you need or can confidently manage.

Mortgages After Insolvency

• Mainstream lenders may be able offer you a new mortgage if it has been two years since your Consumer Proposal was completed, or two years since you were discharged from bankruptcy.
  • Subprime lenders may consider applications in less than two years.
• Renewing your mortgage is normally approved at any point, provided that your mortgage account is in good standing with mortgage payments paid up to date.

Vehicle Financing After Insolvency

• Mainstream lenders may be able to offer you a vehicle loan or lease within one to two years of completing your Consumer Proposal or bankruptcy.
  • There are also specialized lenders who will offer vehicle financing before your Consumer Proposal or bankruptcy is over.

Credit Cards After Insolvency

• Standard unsecured credit cards with mainstream lenders may be available within one year of your Consumer Proposal or bankruptcy being finished.
  • Many people obtain a secured credit card before then.

Can I Get Credit While I’m Insolvent?

Yes, it is possible to apply for and be granted new credit products while you are in a Consumer Proposal or bankruptcy. Mortgage renewals are also generally not affected by an active insolvency filing provided the mortgage remains in good standing.

• While you’re in a Consumer Proposal (or bankruptcy) we recommend keeping credit limits under $500-$1,000 depending on your income and household situation.

Tips, tools and other professional resources for rebuilding your credit, developing spending habits, budgeting and savings strategies are provided as part of the insolvency processes. Sands & Associates’ Licensed Insolvency Trustees and Qualified Insolvency Counsellors are here to help you set up for future success, whatever your goals may be.

Follow “The SANDS Plan” – 5 Essentials for Rebuilding Your Credit

Here are some essential steps to take following “The SANDS Plan” for rebuilding and maintaining your credit rating. Also remember, it will take some time for your credit score to change – advertisements that promise instant or quick credit repair are misleading; there are no quick fixes when it comes to credit ratings, but there is a tried and true method to rebuild:

Set the Stage: Complete the terms of your Consumer Proposal consolidation to receive your Certificate of Full Performance; or in bankruptcy perform the duties required to get a Certificate of Discharge. These are an official “exit” and fully release you from eligible debts – you are now debt-free!

Ensure Accuracy: It’s common to find errors on your credit history reports, which can damage your credit rating. Visit our Clients Resources page to access forms for credit history and investigation requests so you can review your reports and if necessary, have errors corrected. You are entitled to receive both your full credit reports via mail for free once per year.

Get New Credit: A simple way to get new credit is to obtain a secured credit card with a low limit. Demonstrate responsible use of this card by paying off the balance in full before each payment due date. Consistently making all your payments on time and gradually increasing the credit limit can boost your credit rating quickly.

Be a Dependable Customer: All your bills must be paid on time, every time, with no exceptions. Even a missed cellphone bill can have a negative credit rating impact.

Spend Less than you Earn: A key factor in demonstrating credit worthiness is to spend well below your income amount. Ensuring your credit account balances don’t get over 50% of the credit limit is optimal too. Don’t forget to start saving – having a small emergency fund is a great place to start!

Many people turn to formal debt solutions to get a financial fresh start, freeing up personal finances from long-term debt payments and moving forward with life. For example, without other debts it is often much easier to establish a budget, accumulate savings and build a solid credit history that meets “best rate” qualifiers with mainstream mortgage lenders.

More on Life After Your Consumer Proposal or Life After Bankruptcy

What is the Best Way for Me to Become Debt-Free?

Sands & Associates can help you compare the key differences between Consumer Proposals and personal bankruptcy, as well as other debt management strategies. No two situations are exactly alike and it’s important to understand all of your options so you can decide which debt-free plan is the right one for you.

Our full suite of debt help services are available online and in person – book your non-judgmental free debt consultation with a caring local Sands & Associates expert. What would your life look like, debt-free? Find out today.