How Consumer Proposals and Bankruptcy Affect your Credit

If you're struggling with debt, a consumer proposal or personal bankruptcy can offer a fresh start and help you get back on your feet. While these options may negatively impact your credit score in the short term, they can also provide much-needed debt relief and set you on the path to financial stability in the long term.

Here's how a consumer proposal or personal bankruptcy can affect your credit and how
these options can ultimately improve your credit score over time.

Consumer Proposal

A consumer proposal is a debt relief option that allows you to make a formal offer to your creditors to settle your debts. In a consumer proposal, you work with a Licensed Insolvency Trustee to develop a proposal that is realistic and affordable. Once your proposal is accepted, you will make one monthly payment to the trustee, who will distribute the funds to your creditors.

While a consumer proposal may negatively impact your credit score, it will remain on
your credit report for only three years after it is completed but it will never be more than
6 years since registering your consumer proposal. During this time, you can take steps to improve your credit score, such as by paying your bills on time and keeping your credit utilization low.

In fact, a consumer proposal can ultimately help improve your credit score over time. By settling your debts and making regular payments on your remaining debt, you demonstrate to lenders and credit bureaus that you are responsible and trustworthy with
credit.

Personal Bankruptcy

Personal bankruptcy is another debt relief option that can help eliminate your debts. It is usually a last resort option, however, can be an excellent option for some people. Once your bankruptcy is discharged, you will be free from most of your unsecured debts.

While bankruptcy will remain on your credit report for up to seven years, it is important to remember that it is not the end of the road for your credit score. In fact, many people find that their credit score begins to improve shortly after their bankruptcy is discharged. One reason for this is that bankruptcy allows you to eliminate most of your debts.

Additionally, bankruptcy provides a clean slate, allowing you to rebuild your credit with responsible financial habits, such as paying bills on time and maintaining a low credit utilization ratio.

Conclusion

While a consumer proposal or personal bankruptcy may negatively impact your credit score in the short term, they can ultimately offer a fresh start and set you on the path to financial stability. By eliminating your debts and demonstrating responsible financial habits, you can rebuild your credit over time and achieve a brighter financial future. If you're struggling with debt, speak with a licensed insolvency trustee to explore your
debt relief options and take the first step towards a debt-free life.

HOW A CONSUMER PROPOSAL OR PERSONAL BANKRUPTCY AFFECTS YOUR CREDIT