Life after a consumer proposal doesn’t mean living forever without a credit card or a car loan. It does however mean gaining a fresh start free from overwhelming debt payments.
Whether you’re currently researching the options available for a personal debt solution or in the middle of a consumer proposal, you’re likely wondering what happens after it’s completed. After you’ve paid off your creditors, your financial future is in your hands. In today’s post, I’ll explain what happens after your consumer proposal gets finished and what you should do to fully benefit from your opportunity of being debt free.
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What happens after you finish your consumer proposal?
For those still researching, a consumer proposal is a debt relief solution that allows you to repay your creditors what you can afford. It comes with a fixed repayment schedule over a period of up to five years.
What happens after filing your proposal?
Upon filing a consumer proposal, you stop making payments to your unsecured creditors. You make one consumer proposal payment to your Licensed Insolvency Trustee instead. Creditors are no longer allowed to make collection calls, sue you or garnish your wages to collect on debts included in your proposal.
What happens when you pay off your proposal?
Once your consumer proposal repayment plan gets completed, you receive a Certificate of Full Performance. This certificate shows you have honoured your commitments and completed your consumer proposal. This is the last formal step in your consumer proposal. Your debts are now discharged, and you are not required to make more payments to your creditors. You are free from any legal obligations your consumer proposal required of you.
Sometime after you are finished your proposal payments, the Licensed Insolvency Trustee will make a final distribution of money to your creditors. Once completed, you will also receive a final Statement of Receipts and Disbursements which provides a list of amounts each creditor received.
Creditor calls after a consumer proposal
Creditors can no longer pursue you for debts included in your consumer proposal. If creditors continue to call:
- Contact your consumer proposal trustee, who can contact the creditor;
- Advise them that you filed, and completed, your consumer proposal.
- If necessary, send them a copy of your Certificate of Full Performance.
- Tell them to stop contacting you.
- If they continue to bother you, you can file a complaint with the government against the collection agency.
Credit score after consumer proposal
Your credit score will drop after filing however this is a step necessary to eliminating your debts and the hit to your credit rating is temporary.
If you obtain a credit card while in a consumer proposal and you make your payments on time, you should begin to see small improvements in your score even during your proposal.
Every week, the Office of the Superintendent of Bankruptcy notifies the credit bureaus of completed consumer proposals, including the date of completion. We recommend checking both your TransUnion and Equifax credit report a month after you finish your consumer proposal to confirm your report has been updated correctly. This is important since notification of the completion of your consumer proposal on your credit report can raise your credit score 40 to 55 points.
A consumer proposal will be completely removed from your credit report 6 years from the date of filing, or 3 years from completion, whichever comes first.
How long will it take to recover after a consumer proposal?
The maximum time frame for a consumer proposal is five years. However, many people shorten this term through various options:
- Making a lump sum proposal
- Offering a shorter term. Most proposal terms range from three to five years.
- Making additional payments during the life of the proposal and paying off the proposal early.
Your proposal finishes when your payments are complete. If you pay off your proposal faster, you will receive your Certificate of Full Performance sooner.
Recovery from a consumer proposal happens in stages.
Financially, you will begin to recover immediately. Prior to making your debt proposal you were buried in debt payments. A consumer proposal eliminates unsecured debt, with a few legislated exceptions. The result is that making a consumer proposal improves your cashflow. That means in the first years of your proposal you will have more money in your pocket and less going to repay your creditors. A balanced budget means no longer living paycheque to paycheque. Most people in a consumer proposal find it easier to keep up with living costs, car loan payments and can even begin to set aside some savings in year one.
While I mentioned that your finances will improve immediately after filing, most people want to know how long it will take for their credit to recover.
While your credit score will drop right after filing a consumer proposal it will begin to recover even while you are in an active proposal. Obtaining a secured or unsecured credit card during your proposal, and making your payments on time, will help improve your credit score. Your score will also increase once you receive your Certificate of Full Performance which is why it is very important to complete your consumer proposal payments.
As mentioned earlier, a consumer proposal is fully removed from your credit report no longer than six years from the date you filed. At that time, your proposal will no longer have any impact on your credit score.
However, you are not required to wait until your consumer proposal gets removed from your credit rating to begin rebuilding your credit.
Getting credit after a consumer proposal
As you rebuild your finances, you will want to begin the process of repairing your credit. This will take a little longer but not years and years.
We find that most people in a consumer proposal can obtain a credit card within the first year of filing a consumer proposal. There are also lenders who are willing to extend a car loan to someone in a consumer proposal although the interest rate you pay initially will be higher.
You should have no issues renewing your mortgage after a consumer proposal, as long as you have been making your payments on time.
Mainstream financial institutions like banks and credit unions will want you to have fully re-established your credit before approving an application for a new mortgage or car loan at low rates. They generally consider you to have fully re-established your credit once:
- Two years have passed since you completed your proposal
- You have established at least two new credit or trade lines (credit cards being the best)
- Each account has a credit limit of $3,000 or higher.
Steps to take after your consumer proposal is paid off
Your trustee will provide information on how to rebuild your credit after a consumer proposal during your mandatory credit counselling sessions. At Hoyes Michalos we also offer a free credit rebuilding course.
Here are some tips on what you should do after a consumer proposal:
- Keep a copy of your Certificate of Full Performance, even in digital form, for three years from completion, or until your proposal is removed from your credit report.
- One month after your proposal is completed, obtain a free copy of your credit report from both Equifax and TransUnion. Ensure that your date of completion is correct, any debts are marked as ‘included in a proposal’ and review for any other errors like incorrect late payments. To correct your credit report, you must file a Credit Investigation Request Form through the credit bureau.
- Only take on as much credit as you can afford to repay given your income level. Part of surviving a consumer proposal is taking the steps to ensure you will resist overspending in the future. Too much new credit can increase the temptation to spend what you don’t have.
- Pay your bills on time. Set up automatic payments through your online banking so the due date never passes you by. Late or missing payments will further damage your credit score.
- Credit cards make the biggest impact on your credit rating. They demonstrate your ability to manage revolving credit. Consider a secured credit card if you do not qualify for an unsecured card initially.
- Don’t apply for too many credit cards at once and increase your credit limits slowly. Your credit score falls a little every time you apply for a new loan or credit card.
- Pay your credit cards off more than once a month, preferably every time you place a charge. This helps keep your balances low. The lower your utilization rate, the faster your score will improve.
- Focus on your financial health, not your credit score. Your goal should be to have enough money to keep up with your living costs and be able to establish some financial savings goals for your future. Credit is a tool to help you obtain your goals, but it must be used wisely.
Surviving a consumer proposal is possible
If you struggle with debt, you may need a debt solution like a consumer proposal. As you can see, there is life after a consumer proposal. If you would like more advice and information about how a consumer proposal can help you become debt free, contact us for help.
We provide all our services through email, phone, or video chat. Why wait? Give us 30 minutes. We’ll give you a plan to be debt free. Book your confidential and free consultation today at Hoyes Michalos.