If you file for a consumer proposal does it mean you’re bankrupt?

It’s a common question we receive, but the short answer is NO.

While both programs are administered under the Insolvency Act, filing for a consumer proposal and filing for bankruptcy are two different things. Filing for a consumer proposal doesn’t mean you’re bankrupt, just as filing for bankruptcy doesn’t mean you’re in a consumer proposal.

And both have different implications for your credit score.

When you file for a consumer proposal, you are given an R9 credit rating while in the proposal (this is the worst credit rating you can receive). However, once your proposal is paid off, you are upgraded to an R7.

The R7 stays on your credit report for three years from completion. So, in three years, your credit will be clean. You can pay off your consumer proposal in anywhere from one month to five years. This could mean your credit score is clean as soon as three years and one month after filing!

Bankruptcy is a little different. When you file for bankruptcy, you are given an R9 rating that stays on your credit report for seven years after completion. First time bankruptcies can be paid off in nine-to-21 months, so the R9 rating would stay for seven years after that.

A consumer proposal allows you to rebuild credit faster, particularly if you can pay it off quickly.

That’s where working with financial counsellors, like DebtCare Canada, comes in. We can help you decide which is best for you — filing for a consumer proposal or filing for bankruptcy — and make sure you are protected along the way.

We are on your side and will work to secure you the best deal possible in your consumer proposal or bankruptcy.

If you’re thinking of filing for either, contact us first for a free consultation. Call 1-888-890-0888 or visit www.debtcare.ca.