How Bad is a Consumer Proposal?

If you’re struggling with overwhelming debt, you may have come across the term consumer proposal as a possible solution. But how bad is a consumer proposal for your financial future? Let’s break it down by understanding its impact on your credit, how long it stays on your report, and what options are available to you afterward.

A consumer proposal is a legally binding agreement between you and your creditors, facilitated by a Licensed Insolvency Trustee (LIT). It allows you to negotiate reduced debt payments over a fixed period—typically five years—while avoiding bankruptcy. Unlike bankruptcy, a consumer proposal lets you keep your assets and often results in paying back only a portion of what you owe.

How Bad is a Consumer Proposal on Your Credit?

One of the most common concerns is how bad is a consumer proposal on my credit? When you file a consumer proposal, it will negatively impact your credit score. Your credit report will be assigned an R7 rating, which indicates you are making regular payments through a debt settlement program. While this is not as severe as the R9 rating associated with bankruptcy, it will still make it difficult to obtain new credit in the short term.

How Long Does a Consumer Proposal Stay on Your Credit Report in Canada?

A consumer proposal stays on your credit report for three years after you’ve completed your payments or six years from the date of filing—whichever comes first. You can increase your payments or make lump sum payments at any time to pay off your proposal sooner, which may lead to the R7 rating being removed from your credit history more quickly.

Rebuilding Your Credit After a Consumer Proposal

Many people worry about obtaining credit again after completing a consumer proposal. The good news is that you can start rebuilding your credit immediately. Here are some key steps:

• Apply for a secured credit card to demonstrate responsible credit use.
• Make on-time payments on all bills.
• Regularly monitor your credit score to track your progress and verify its accuracy.

Is a Consumer Proposal a Bad Idea?

A consumer proposal does come with drawbacks, primarily the negative impact on your credit score and the limitations it places on borrowing. However, it is a viable alternative to bankruptcy that allows you to regain control of your finances while avoiding the severe consequences of an R9 rating.

If you’re unsure whether a consumer proposal is right for you, speak with a Licensed Insolvency Trustee to explore your options. A professional can help you weigh the pros and cons based on your unique financial situation.

So, how bad is a consumer proposal on your credit? While it does affect your credit score and stays on your report for several years, it is not a permanent financial setback. By taking proactive steps to rebuild your credit, you can recover and work toward a stronger financial future. If you are struggling with debt, don’t wait—reach out to a professional today for a free consultation to explore your options.