Congratulations you have made it though one of the toughest financial times in your life. It feels good to have this under control and know there is a light at the end of the tunnel. I too have been down this road in 1998 and now I educate the RIGHT way to have a plan.
There is no shame in going through either a consumer proposal or bankruptcy. Life throws wrenches into our well laid out plans. This is why we have these financial recourses to get us back on our feet. What is most important is don't make the same mistakes again and really get to know how the mortgage and credit world works and use a mortgage planner along with your trustee or debt counsellor to have a plan of action!
There are no quick fixes or programs to get you back on track! Don't get sold on some "swindler" taking advantage of your situation. There is a company out there that will loan you $2500 that you pay back over 2 years and they report it to bureau for you. The cost $900 fee! That's crazy and completely not necessary to have.
Here are the coles notes on what you need to know for those in consumer proposal. Remember ever situation is unique, so always have an experienced broker work with you:
You can refinance your home when in a consumer proposal and pay it out. You need more than 20% equity to do this. The sooner you pay it off, the faster the consumer proposal comes off your credit bureau.
If you are going with an INSURED mortgage (ie 5-20% down) then you must be discharged from Consumer proposal for 2 years and credit has to be re-established.
Most lenders want the Consumer Proposal paid in full prior to mortgage approval. Very few will look your deal while in proposal.
Area dependant - Fort Mac or small rural communities harder to get approvals.
You want to plan to have some savings that is more than just your downpayment if your are buying. Don't be house rich and cash poor.
For credit, sometimes we can use secondary credit like ICBC cell phone, your rental payments to landlord. If we can prove good repayment for last couple years.
Also really need to ensure that at the 3 year mark after you are done, that your Consumer Proposal is removed from credit bureau. I have seen someone refinance 2 years into their 5 year proposal and pay it out and forget to remove it from the bureau a year later, so it keeps hurting your score and years of damage for now reason.
How long does a Consumer Proposal stay on a credit report?
Once you enter into a consumer proposal, it will start reporting on both Equifax and TransUnion credit reports within 30 days. Depending on your consumer proposal agreement with creditors, You will be making payments in a consumer proposal generally between 3 to 5 years.
Consumer Proposal will stay on your credit report for 3 years from the date you are discharged (made your last payment) regardless if you are looking at your Equifax or TransUnion report.
Where do I start in building my credit again?
You can start rebuilding your credit as soon as you file your proposal. Bankruptcy is a bit different. You need aim TWO credit cards, open for TWO years, with an adventual available credit of $2500 each. Just get TWO that start reporting.
Your Credit and what have you done to make it better:
They are lending YOU money, so a good broker will need to explain your situation, who you are, why you had issues and what have you done to improve your situation. This is called the 5 C's of credit. This is a a method used by lenders to determine the credit worthiness of potential borrowers. The system weighs five characteristics of the borrower, attempting to gauge the chance of default or you being a chronic mismanager of debts.
Character - When lenders evaluate character, they look at stability — for example, how long you’ve lived at your current address, how long you’ve been in your current job, and whether you have a good record of paying your bills on time and in full. If you want a loan for your business, the lender may consider your experience and track record in your business and industry to evaluate how trustworthy you are to repay.
Capacity - refers to considering your other debts and expenses when determining your ability to repay the loan. Creditors evaluate your debt-to-income ratio, that is, how much you owe compared to how much you earn. The lower your ratio, the more confident creditors will be in your capacity to repay the money you borrow
Capital - refers to your net worth — the value of your assets minus your liabilities. In simple terms, how much you own (for example, car, real estate, cash, and investments) minus how much you owe.
Collateral - refers to any asset of a borrower (for example, a home) that a lender has a right to take ownership of and use to pay the debt if the borrower is unable to make the loan payments as agreed.Some lenders may require a guarantee in addition to collateral. A guarantee means that another person signs a document promising to repay the loan if you can’t.
Conditions - Lenders consider a number of outside circumstances that may affect the borrower’s financial situation and ability to repay, for example what’s happening in the local economy. If the borrower is a business, the lender may evaluate the financial health of the borrower’s industry, their local market, and competition.
It all starts with the planning the day you decide to file for a consumer proposal. If you are finding you are starting to fall behind in payments or considering a consumer proposal.
Kiki Berg, Mortgage and Credit Expert
updated 05-12-2023