You’re in debt. You’ve filed a Consumer Proposal to pay back what you can. But how long does this information stay on your credit report?
A consumer proposal will stay on your credit file for three years after the last payment is made. To compare, when you file for bankruptcy, it will stay on your credit file for six years after discharge if it’s your first bankruptcy filing, and 14 years if it’s your second time going bankrupt.
A consumer proposal is usually a less harmful option for your credit report and it lets you start fresh sooner – but this is directly tied to the proposal term you choose. Usually the repayment terms start at 24 months and go up to 60 months. If you go with a shorter proposal term your credit history will reflect the proposal for 24 months (repayment) plus 36 months more (3 years) , 5 years in total. This is obviously much better than 9 months of bankruptcy (during discharge) plus 6 years, total of 6 years and 9 months.
However, if you agreed to a 60 month proposal term, the numbers change drastically as it’s now 5 years plus 3 years adding up to 8 years. In this case, a first time bankruptcy begins to look more appealing.
It should be noted that the above example is very basic, it assumes you possess minimal assets, your income is low, you are heavily overextended with payments and this will be your first bankruptcy, in which case a bankruptcy discharge will likely be a smooth process. But if your situation is more complex, choosing a bankruptcy just to shave-off 1 year of negative credit may not be the best option for the long term.
The key advantage of a consumer proposal is that in most cases you get to keep your assets (e.g. your home, car, etc.), and once all parties agree to the proposal terms, your creditors can not ask you to pay more money even if you win a lottery or start making more money.
Another advantage of a consumer proposal is that while your proposal term may require a monthly payment for 60 months, the proposal rules allow you to fulfill the payment obligation early – so for example, if your consumer proposal calls for a monthly payment of $200 for 60 months for a total of $12,000, if you have the financial ability, you can pay the proposal in say 3 years time. It follows that if you pay your consumer proposal off early, it will come off of your credit report early as well.
Specific to Your Needs and Finances
The terms of a consumer proposal can be specifically tailored to suit your needs. The terms can be flexible and creative. A consumer proposal term can be as short as making a one time lump sum payment, or as long as 60 months or 5 years. As well, the monthly payment does not have to be fixed for the entire proposal term. So for example, a person that may want to file a 60 month proposal but is retiring from his or her job in 24 months, could file a proposal that starts with a higher payment for the first 24 months and then is lowered for the last 36 months when his or her income is reduced due to retirement.
The most common consumer proposal filed is for a period of 36 to 60 months with a fixed monthly payment. But as noted above, a consumer proposal can be tailored to suit your needs and ability to make payments. In general, consumer proposals are good if you have a steady income that will allow you to make regular monthly payments. If you do not have a steady income consumer proposals pose more of a risk.
A Legal Way to Deal with Your Debt
While this is probably a stressful time for you and your family, filing a consumer proposal or declaring bankruptcy are the legal ways to deal with your debt. Three years after completing the consumer proposal it will cease to be on your credit file. Once it is closed, you can rebuild credit in a variety of ways. After you have fulfilled the repayment plan you will be issued a certificate of completion which will go on your credit file. You should make timely payments in all financial matters, and this will help rebuild your credit score. It is easier to make timely payments if you are not living beyond your means. You may need to consult with a financial adviser to help you devise a budget suitable for your lifestyle. In this way, you’ll eventually be able to lead a financially responsible life and have a good credit score, a win-win situation.
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