Consumer proposals are often times a great alternative to bankruptcy. For people who are concerned about a negative impact on their credit rating, which is a legitimate concern, a consumer proposal may be an option worth considering. In Ontario, a bankruptcy is typically on your credit rating for seven years from the date of discharge. While a consumer proposal is on your credit rating for three years upon completion.
Depending on your circumstances and your ability to repay your debts, a consumer proposal could allow you to have a better credit rating quicker.
Although making a consumer proposal will still result in a negative mark on your credit rating, and therefore likely result in higher interest rates being available for up to three years after completion of the consumer proposal, there are a number of things that can be done to improve your credit rating, even before the consumer proposal is completed. For example, if you are able to set aside some savings, you can obtain a secured credit card with the savings as a “security deposit”. Responsible usage of the secured credit card can quickly result in positive marks on your credit rating. Your score will begin to increase within a few months of accessing new credit. And within a year or two, you will actually have a reasonable chance to secure a mortgage or arrange a car loan at less than disgusting interest rates. However, it is very unlikely any creditor will grant you unsecured credit of any magnitude until the consumer proposal has dropped off your credit report (three years post bankruptcy).
Although a consumer proposal still has negative impact on your credit score, if you’re struggling with debt and can’t get out on your own, it’s better to take care of it sooner rather than later. If you wait too long, you may end up having to file bankruptcy, which will remain on your credit report for seven years.