I am often asked how long a bankruptcy or consumer proposal remains on a credit report.
In Canada there are two large credit reporting agencies, or credit bureaus, Equifax and Trans Union, and they each report bankruptcies and proposals differently.
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Bankruptcy is a legal process that helps you eliminate debt you can’t repay. That’s the positive side of bankruptcy, but I know people are worried about the impact bankruptcy will have on their credit report and their ability to get a loan after bankruptcy. I’m Doug Hoyes, a Licensed Insolvency Trustee with Hoyes, Michalos & Associates. Well, let’s look at how bankruptcy appears on your credit report.
Bankruptcy will appear in two sections of your credit report; the legal or public record section, and the individual account section which is a list of all of your debts. When you file bankruptcy, the Office of the Superintendent of Bankruptcy will send information to the credit bureaus who will put a note in the legal section that states you filed a bankruptcy proceeding and the date you filed.
Your credit report also includes a trade account section of activity reported to the credit bureaus by your creditors, which includes the name of the creditor, the balance outstanding, the last payment date and how many months you might be behind on payments. When you file bankruptcy, your creditors will add a note that the debt is included in bankruptcy.
The next update happens when you are discharged. The Office of the Superintendent of Bankruptcy will notify the credit bureaus when your bankruptcy is finished, which is when you get your discharge. This discharge date is added to the legal section in your credit report.
So when are these notes on your credit report removed? In the case of the legal section notice for a first time bankrupt, Equifax removes the notice six years after your discharge, TransUnion removes the notice seven years after your discharge. In your trade account section, the credit bureaus will purge this information six or seven years after the date of last activity which is usually the date you were discharged.
It’s important to know that you can start to rebuild your credit long before this six or seven-year period ends. There are steps you can take to rebuild your credit even while you’re bankrupt. I don’t recommend deciding to hold off on filing bankruptcy because you’re worried about your credit. If you have more debt than you can ever hope to repay, your credit is probably already bad or soon will be. You can get a secured and sometimes unsecured credit card after bankruptcy and sometimes while you’re bankrupt depending on what else is on your credit report.
Over the years I’ve had thousands of clients who have been able to get a loan after they’re discharged from bankruptcy. The terms of the loan like the interest rate and down payment required will depend on their income and what steps they’ve taken to rebuild their credit. Your ability to borrow at favourable terms will improve over time as you work to rebuild your credit, but the credit rebuilding process often starts and moves faster if you eliminate troublesome debt first.
According to Equifax’s website, “Bankruptcy stays on your Equifax credit report for 6 years after the discharge date, or 7 years after the date filed without a discharge date. If a second bankruptcy is filed, then the first re-appears on your Equifax credit report, and both bankruptcies remain for 14 years after the discharge dates.”
On TransUnion’s website, they state that they maintain information on your file for the maximum length of time permitted by provincial credit reporting legislation. In Ontario, credit reporting is governed by the Consumer Reporting Act which states, in subsection 9 (3) (e), that a consumer reporting agency shall not include in a consumer report “information as to the bankruptcy of the consumer after seven years from the date of the discharge except where the consumer has been bankrupt more than once.”
For a single bankruptcy in Ontario, TransUnion maintains this information seven (7) years from the date of discharge. If the consumer declares bankruptcy on more than one occasion, each bankruptcy will report on file for fourteen (14) years from the date of discharge of each bankruptcy
TransUnion also states that when a bankruptcy is removed from your file, all accounts reported as included in that bankruptcy will also be removed from your file.
Equifax automatically deletes a first bankruptcy six years after the date of discharge, whereas TransUnion leaves the bankruptcy on your credit report for seven years after the date of your discharge.
Consumer proposal reporting
Consumer proposal reporting was updated by both credit bureau’s in 2019. Both have added a maximum time period of 6 years after the date of filing or default.
A consumer proposal will be removed from your Equifax credit report 3 years after you’ve paid off all the debts according to the proposal, or 6 years from the date it was filed, whichever comes first.
A consumer proposal and all accounts reported as satisfied through the proposal will be removed from your TransUnion credit file 3 years from the date you satisfied the proposal or 6 years after the date you defaulted on the account, whichever date comes first.
What this means is the maximum period a proposal will remain on your credit report is 6 years from the time you file and can be shortened if you pay off your proposal in less than three years. For example, for a five-year proposal, the note will be removed one-year after completion. For a 4-year proposal, 2 years afte completion (because you reached the maximum 6 year period). If you pay off your proposal in two years, it will only be on your credit report for a total of 5 years (2 years + 3).
Path to credit recovery
If you are avoiding talking to a bankruptcy trustee because you are concerned about how your credit will be affected, it’s important to consider two factors:
- If you have bad credit today, bankruptcy or a consumer proposal can be a step in repairing your credit history because it eliminates debt you may otherwise not be able to pay. Even if you think you have good credit, your ability to obtain a new loan may be negatively affected if you carry too much debt.
- It is important to note that your credit report is only one element lenders use to decide if they will let you borrow money. They are also interested in your income, job stability, assets, and perhaps co-signers. By saving money and paying your regular monthly bills on time, it is possible to gain access to credit in less than seven years after your bankruptcy has ended.
If debt is holding you back from rebuilding your credit, talk with a Licensed Insolvency Trustee about how to eliminate your debt. We provide free, no-obligations consultations during which we will conduct a full debt assessment and provide you with options to get out of debt so you can build a stronger financial future.