How long does it take to get credit after a bankruptcy or a proposal?

2022 / 11 / 18

The fear of not being able to get credit after filing a bankruptcy or a proposal is a common concern for people seeking advice for debt. In some cases, the fear causes pause for individuals who could benefit from the relief provided by a bankruptcy or a proposal. The pause likely stems from the loss of credit to deal with emergency expenses as they arise instead of having an adequate emergency fund to deal with unexpected expenses as they arise. Besides emergencies, the cost of vehicles has increased so much that the prospect of buying something reliable without borrowing is a fear people have that might deter them from seeking options to help deal with their debt. With any bankruptcy or proposal, the hope is to provide immediate relief from making debt payments and re-direct a portion of those funds towards establishing an emergency fund to minimize over reliance on credit.

Generally, a person can expect the following with regards to how long it might take for new credit options:
1) Credit cards – in many cases, as long as a person has steady employment income, they can obtain a secured credit card during their bankruptcy or proposal to start working on rebuilding credit during the process. By making timely payments and keeping a low level of credit utilization (percentage owed vs total credit limit), a secured credit card can be one of the easiest tools to help rebuild credit and score.
2) Vehicle Loans – there are a number of lenders that will provide vehicle loans during a bankruptcy or proposal provided the applicant has steady income.
3) Mortgages – generally the hardest type of credit to obtain. In many cases, a person who filed bankruptcy or a proposal can qualify for a mortgage two years after the completion of their bankruptcy or proposal and sometimes sooner if a large down payment is available.

A common misconception regarding bankruptcies and proposals is that an individual will not have access to credit for 6 or 7 years. Lenders directly impacted by the bankruptcy or proposal filing could decide not to lend again for a period of time, however other lenders not directly impacted by the bankruptcy or proposal filing will be easier to deal with. An individual filing a bankruptcy or proposal with balances owed to the same bank where they also conduct day-to-day banking are encouraged to set up banking with a new institution prior to filing. This switch will allow the individual to form a new relationship with a new bank that might know they filed a bankruptcy or a proposal but will not have the same concern as an institution that was directly impacted by the filing.

During a bankruptcy or a proposal, time is dedicated to discussing credit reports, credit scores and the importance of checking reports often for accuracy. Errors can happen and neither credit agency is set up to notify a person of a potential error on their credit report. It is up to the individual to check their own credit reports at least annually, scan for errors and if applicable, notify the appropriate credit agency, without delay. Errors left uncorrected will act as a drag on future credit score and can be difference between approved or not approved and/or high rate of interest or competitive rate of interest.

If you are looking for advice, or a second opinion about your debt, it does not cost anything to talk about your options. Every financial situation is unique and viable options can differ from person to person. A conversation free of judgment, is the first step to determine options for debt that make sense for you. For a free consultation, please call or text (506) 645-1814 or email jaime@tackledebt.ca; or visit www.tackledebt.ca.