The new reality in Canada unfortunately includes more and more cases of bankruptcy and overwhelming debt, with availability and reliance on credit being a major cause of it. Faced with this reality, many choose a consumer proposal, avoiding the black spot of bankruptcy by trying to demonstrate a willingness to pay and regain control of their finances.
In these cases, a trustee in bankruptcy creates an agreement between an individual and his creditors for the payment of a portion of the amount owing, or the full amount over a longer period. In some cases, it is even possible to extend the payment route by reducing the amount due. Creditors often accept these proposals because they allow them to recover a larger portion of a debt than if the indebted banked the protection of the law of bankruptcy.
What is the impact of a consumer proposal on my credit report?
It should not be forgotten: consumer proposals have a negative impact on the credit report: while a consumer proposal is in place, an “R7” code is placed on your credit file and it will remain in your history for a period of three years. This code, while in place, can have a significant impact on your access to credit. In short, the consumer proposal is a tool that allows you to avoid that your credit report has an indication of bankruptcy registrant, but it is not an inoculation against the negative effects of your financial situation!
What if I need a loan?
When you are under the obligation of a consumer proposal, you may find yourself looking for access to credit to pay for everything you need to live and meet your economic commitments. It is important in these moments to keep in mind that you have undertaken this proposal to get yourself out of debt: adding to the amount you owe will only serve to make your situation worse!
What if I look for a loan from a bank?
Once a consumer proposal is completed and you have nothing left to pay, trying to reestablish your credit with a bank can be difficult if not impossible. While it is true that a consumer proposal is more responsible than a bankruptcy, banks attach the same risk rating to a proposal as to bankruptcy – simply an inability to manage money well. That is, a high risk.
While you are still under the obligation of a proposal, the banks will not even take your loan application into consideration. Even after it is completed, banks often wait up to two years for applications before they can even be addressed. This practice may seem draconian, but it is not without reason: the result of its proposals is often, despite all, bankruptcy. (See the comparison below)
How can I qualify for a loan after a consumer proposal?
It’s hard to get any loan when you’re not able to pass a credit check. In these cases, there is really only one alternative: private lenders. It is clear that they only lend at high interest rates, but if a loan is needed, your choices may be too limited to negotiate on this point. Even with a private lender and a first payment in hand, you may be denied your loan application. Like any source of credit, private lenders have minimum criteria before they can lend. They still want to know they will find the money lent! To qualify, you will have to meet the following criteria