Read on to learn about how Canada’s two legal consumer debt solutions (Consumer Proposals and personal bankruptcy) can be useful steps in helping you achieve future goals like home ownership, comfortable retirement and more.

What is the Credit Impact of Declaring Bankruptcy or Making a Consumer Proposal?

Understanding the real-life pros and cons can help people make better decisions about how to resolve financial challenges they may be facing in dealing with debt and remove anxieties about the future too.

A Consumer Proposal is a special consolidation option that allows you to combine virtually all of your debts into one (usually monthly) repayment plan where you will offer to repay the amount you can afford to your creditors, and they will agree to write-off the unpaid balance.

• Filing a Consumer Proposal allows you to access consolidation and avoid bankruptcy without having to borrow or pay additional service fees. Your creditors will be barred from contacting you for payments or adding interest charges to your debts.
• In BC making a Consumer Proposal and the accounts satisfied through it will come off your credit history three years from the date you completed your Consumer Proposal, or six years either from the date you filed it (Equifax), or from the date you defaulted on the account (TransUnion) – whichever comes first.

Declaring personal bankruptcy is another legal solution that allows you to potentially have full forgiveness for all your debts should you find yourself unable to continue making your payments.

• Most people complete personal bankruptcy and receive an automatic discharge in nine months, retaining all their assets and paying a straight-forward administration fee of approximately $2,700.
• In BC personal bankruptcy and the accounts reported as included in that bankruptcy will be removed from your credit bureau file six years from the date you were discharged (released) from bankruptcy.

Legal debt solutions aside, most accounts with ‘adverse’ credit history (i.e. NSFs, collections, judgments, etc.) will be shown on your credit bureau file for six years after the date you defaulted on the account.

• Debts reported as paid through an informal credit counselling program will be removed two years from the date your program is satisfied, or six years after the date you defaulted on the account (whichever comes first). It’s important to note that you usually need to pay those accounts off in full to consider them settled with your creditors.

Clearing your debt with a Consumer Proposal or by completing a personal bankruptcy can be the first key step in building a credit history favourable for lenders and creating healthy credit habits that will sustain your finances in the future. The financial fresh start of a legal debt solution means that many people can get out of debt and into a positive financial position faster through doing a Consumer Proposal or bankruptcy than by continuing to try to pay off their debts informally on their own.

Getting a New Mortgage After Bankruptcy or a Consumer Proposal

Yes – it is possible to qualify for a new mortgage after filing for bankruptcy or making a Consumer Proposal. You can apply for credit (mortgages, vehicle financing, credit cards, etc.) at any time, but it is highly recommended that you complete your Consumer Proposal or bankruptcy before taking on any substantial new credit. There are also a few important things to know if this is one of your goals:

• Mainstream mortgage lenders may approve a new mortgage at standard lending rates if it has been two years since you finished your Consumer Proposal or bankruptcy.
  • Although sub-prime lenders may approve you for a mortgage sooner than standard lenders, carefully consider if the cost of less favourable terms is worthwhile instead of waiting until you qualify for ‘best rates’.
• Your credit history should no longer reflect over-extended debt, and you should also take steps to:
  • Accumulate a down-payment
  • Check for and resolve any errors on your credit bureau files
  • Demonstrate responsible credit use with new established credit accounts
    • Keep borrowing limits low to maintain a good ratio to your income, and always make all your payments on time.

Lenders also may consider whether you demonstrate other positive markers such as:

• Earning a steady income
• The length of time you have been at your current address
• Having savings and other assets

Qualified financial counselling is provided as part of both Consumer Proposal and personal bankruptcy processes in Canada, giving you the opportunity to get one-on-one expertise and resources for credit best practices and other financial literacy topics.

71% of consumers polled said their experience receiving professional debt help allowed them to improve their budgeting and/or savings skills; 59% said they had more confidence in daily financial management.

Learn How to Better Manage Credit & Debt – and Mistakes Not to Make

Can I Renew my Mortgage During a Bankruptcy or a Consumer Proposal?

An ongoing mortgage that you intend to continue paying on is not normally considered in the debts that will be wiped out through personal bankruptcy or making a Consumer Proposal. Because most bankruptcies and Consumer Proposals are used to deal with unsecured debts only, having declared bankruptcy or made a Consumer Proposal does not normally impact the mortgage renewal process should yours come due during (or after) your bankruptcy or Consumer Proposal, assuming that your mortgage has been paid up to date as per your borrowing terms.

A Consumer Proposal or personal bankruptcy may conversely be used as a solution to resolve unpaid balances from secured debts where the securing asset has been surrendered or seized, such as a mortgage foreclosure or a vehicle lease shortfall.

Learn More About BC’s “Seize or Sue” Rules

How Filing for Bankruptcy or Making a Consumer Proposal Can Help with Future Credit

Despite the short-term credit impact of a legal debt solution there can be substantial benefits in the immediate term as well as for future borrowing, including:

• Resetting your credit history
  • Rebalance debt-to-income ratios
  • Wipe out ongoing ‘adverse’ transaction notes
  • Establish positive credit history
• Stopping the ongoing cost of debt’s added interest charges.
• Freeing up room in your budget to build savings and/or meet your costs of living more comfortably.

In addition to maintaining an emergency savings account, you may want to consider other financial goals, often made more achievable with the absence of debt payments, such as:

• Purchasing a new vehicle
• Saving for a vacation
• Assisting dependents with post-secondary education costs
• Financing retirement
• Inheritance planning

There are a lot more ways to use your money well without the burden of debt payments!

When is it Better to File Bankruptcy or Make a Consumer Proposal Rather Than Pay my Debt?

No two people’s situations are exactly alike, and it’s important to understand and consider all of your options to deal with debt so you can make the decision on how move forward in the way that’s best for you and your goals.

Try the “Rule of 60” Quick Debt Repayment Math

• Add up your total unsecured debt and divide that number by 60.
• Consider whether this calculation gives you a number that looks consistently affordable as a payment for you each month to pay off all your debts within the next five years (60 months).

If yes, then you can consider what budget shifts or other self-directed strategies may be needed to help you achieve this goal. Otherwise, you may want to consider an option like a Consumer Proposal that will allow you to cut your debt down to what you can afford to pay each month, to get to debt-free within five years (or less). Or if you are in a situation where you are unable to afford any monthly payment, bankruptcy may be a more suitable option to consider.

• Most people prefer to avoid declaring bankruptcy if possible, and in many cases a Consumer Proposal can be achieved to allow you to establish a clear repayment plan, while still cutting debt down to an affordable repayment.
• This ‘best of both worlds’ gives consolidating Consumer Proposals significant advantages over traditional consolidation loans, mortgage refinancing, as well as bankruptcy.

You don’t have to make these decisions alone. If you’re unsure what to do about your debt don’t hesitate to connect with a local Licensed Insolvency Trustee in your community. In less than an hour we can work with you to create a personalized debt-free plan tailored to your needs.

Sands & Associates offers a full suite of legal debt help services, including Consumer Proposals to creditors and personal bankruptcy assistance.

The post Can I Get a Mortgage After a Bankruptcy or Consumer Proposal? appeared first on Sands & Associates.

Whether you are considering filing bankruptcy, already underway with filing, or just finishing bankruptcy – we know you have questions about “life after bankruptcy”. We’ve outlined information about what happens once bankruptcy is over, and some tips for success after bankruptcy: 

Bankruptcy Discharge Process

Receiving a discharge from bankruptcy means that you have completed the duties required in your bankruptcy and no longer bear any liability for the debts you owed prior to filing. Your Licensed Insolvency Trustee will also be discharged from the bankruptcy process once all of their duties are fulfilled. These include:

• Ensuring applicable income tax returns have been properly filed and assessed
• Reviewing all creditor claims
• Compiling a final accounting of all moneys in the bankruptcy estate
• Distributing money (called dividends) to eligible creditors

The “final accounting” in a bankruptcy filing is called a Statement of Receipts and Disbursements. Before any money is distributed, the Statement is reviewed and approved by the Office of the Superintendent of Bankruptcy – this helps to ensure full transparency.

It can take some time for your bankruptcy estate to be officially closed – but don’t worry, if you have received your bankruptcy discharge your role in the bankruptcy is done!

Real Stories: Meet some of the people whose lives have been changed working with Sands & Associates.

Key Bankruptcy Documents to Keep

You can expect to receive several sets of documents throughout your bankruptcy, some key bankruptcy documents to keep for your records are:

Notice of Bankruptcy: This is the first document you will receive as part of your bankruptcy. In addition to noting the official date of your bankruptcy it will also contain a list of your creditors.

Discharge Certificate (or Order): Starting a bankruptcy means that you no longer need to make payments to your creditors, and being discharged (released) from bankruptcy means that you are officially free from the responsibility of repaying your debt. Your Discharge Certificate (or Order) is the document that declares you have achieved a financial fresh start! 

Statement of Receipts and Disbursements: This is normally the last document your Trustee will send you. It will contain information about key administrative tasks completed and a final list of creditors that were dealt with under your bankruptcy.

Be sure to update your contact information with your Licensed Insolvency Trustee if your mailing or email address changes before you receive your Statement of Receipts and Disbursements.  

What if I lose my bankruptcy documents?

If you have misplaced a document related to your bankruptcy there are a few ways you can get a copy for your records:

• Contact your Trustee directly
• Contact the Office of the Superintendent of Bankruptcy

Credit History and Score after Bankruptcy

A common concern for people evaluating debt consolidation and other debt management options is that they will not be able to rebuild their credit in future if they file bankruptcy, or that they will need to wait for seven years to apply for new credit – this is false. Bankruptcy is not a permanent mark on your credit history, and your credit score can change dramatically in just two to three years after your discharge.

Most people are discharged from bankruptcy after nine months, and the bankruptcy will show on their credit history report for six years after the date of their discharge.

• You can begin building your credit up and apply for credit at any point – you do not need to wait until the six-year window has passed to start reestablishing and improving your credit history and score.
• It is quite common to be granted credit such as a new mortgage or vehicle financing within two-to-three years of exiting bankruptcy, and as little as one year after bankruptcy it is often possible to obtain a standard credit card at ‘best rates’.

Following these credit rebuilding steps is crucial in order to build your credit score, and ultimately get new credit after bankruptcy:

• Get a copy of both your credit reports and check them for errors
  • If you find errors take the time to get them fixed (more on that below)
• Pay ALL your bills on time, every time – even small bills like cellphones count
• Establish new credit and use it well
  • Secured credit cards that report to credit bureaus are a good place to start. Some popular choices include options through lenders like Home Trust, Capital One, People’s Trust

You can learn more about steps you can take to rebuild your credit following a personal bankruptcy in this short video and read more about Rebuilding Credit After Bankruptcy here.

The Office of the Superintendent of Bankruptcy sends information about discharged (completed) bankruptcies to credit bureaus weekly, so these credit histories are supposed to be updated automatically, but it is common to find errors on your credit history following a bankruptcy. One of the most common errors is to find that a creditor is reporting you still owe them money, even though the debt was discharged (released) in the bankruptcy.

How can I fix errors on my credit reports?

It can feel very frustrating to find mistakes or errors on your credit history reports when you’re ready to move on with your life. The good news is that you can take control of the situation and get them fixed!

• Use the Credit Investigation Request Forms here to request corrections from both Equifax and TransUnion.
• You will need to fill out the form, attach relevant documents if possible and mail the form to the address at the top of the report where you found the error.

Because Licensed Insolvency Trustee are not lenders, we unfortunately cannot update your credit records in any capacity.

Getting Credit After Bankruptcy

When establishing new credit it’s important to understand all the terms and conditions of borrowing. If you don’t yet qualify for ‘best rates’ ask yourself if the item you may be purchasing on credit is something you really need, or if it can wait until it will cost you less to borrow.

Most people keep all their assets throughout a bankruptcy and generally speaking you are free to sell, dispose of or transfer assets you may have retained – there is also no legal reason why you would be unable to acquire new assets such as a home or vehicle. Although many people will wait until their bankruptcy is complete to take on new credit, this isn’t always the case.

How long after bankruptcy can I get a mortgage?

Mainstream mortgage lenders may be able to grant you a new mortgage if it has been two years since you were discharged from bankruptcy. Subprime lenders may grant mortgages within less than two years.

Renewing your mortgage during bankruptcy is normally approved, provided that your mortgage payments are up to date and your mortgage account in good standing.

How long after bankruptcy can I get a car loan?

Standard lenders may grant you a vehicle loan or lease within a year or two of your discharge, there are also specialized lenders who will even give vehicle financing before discharge.

How long after bankruptcy can I get a credit card?

It isn’t uncommon for people to set up a secured card while they are still in the bankruptcy process. Standard unsecured credit cards at best rates may be available within one year of your discharge.

Remember that your credit history and score are not the only factors lenders look at – your income and savings can also be key! 

Filing Income Tax Returns

In a bankruptcy your Licensed Insolvency Trustee will file two income tax returns for the year your bankruptcy began, these are called pre- and post-bankruptcy income tax returns. If you had outstanding returns at the start of your bankruptcy these may also be caught up and filed as part of your bankruptcy.

You will need to file your tax returns as usual in the years after your bankruptcy filing and pay any balances due. Any balance owing to the Canada Revenue Agency that may arise after the date of your bankruptcy will be your responsibility to pay.

If tax filings and bookkeeping remain a challenge you may wish to seek assistance from a reputable bookkeeper or accountant for assistance to ensure no unpleasant tax debt surprises in the future.

If you’re researching bankruptcy it’s important to remember that this process provides a fresh start in a relatively short amount of time, for most Canadians it’s only 9 months until they are released from bankruptcy – many people spend more time contemplating (or postponing) filing bankruptcy than that.

What would your life look like without debt? Find out about bankruptcy and bankruptcy alternatives – book your confidential free debt consultation today.

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