How a consumer proposal shows up on a credit file, and for how long

A consumer proposal is an arrangement made under the Bankruptcy and Insolvency Act, administered by a Licensed Insolvency Trustee, in which creditors accept an agreed settlement of debts over a defined period. It is not bankruptcy, and it is treated differently on a credit file — but the difference is smaller than most people are led to expect.

While it is active

Accounts included in a proposal are reported as included, and the proposal itself is recorded on the file. Both bureaus flag it.

For most lender programs, an active proposal is the harder state to lend against. The obligation is live, the payments are ongoing, and the arrangement has not yet demonstrated that it will be completed.

Many programs will still consider a file with an active proposal, more so where a good part of the term has been paid on schedule and income is well documented. It is a smaller field than after completion, and the terms available are generally not the same — but an active proposal is a reason to apply carefully, not a reason to wait.

What changes at completion

When the terms are fulfilled, the trustee issues a Certificate of Full Performance. That document is the thing that changes the conversation, and it changes it more than people expect.

Practically:

• The proposal moves from active to completed on the credit file
• Included accounts should update to reflect their settled status
• A materially wider set of lender programs becomes available
• The reporting clock starts running toward removal

Get the certificate, keep it somewhere you can find it, and send a copy with any application. This is the single most useful document a file in this situation can carry.

How long it stays on the file

The two bureaus treat it slightly differently, which is a persistent source of confusion.

Equifax Canada generally removes a consumer proposal three years after the date of completion, or six years after the date it was filed, whichever comes first.

TransUnion Canada generally removes it three years after completion, with some provincial variation.

The individual accounts included in the proposal follow their own six-year clock from the date of last activity, which is why a file can show a completed proposal alongside included accounts that have not yet aged off. That is normal and it is not an error.

What a lender is weighing afterwards

Not the proposal itself, particularly. The specific things:

Time since completion

The main variable. Recency matters here as it does everywhere else on a credit file.

What has been established since

A new account, opened after completion and paid on time, is the most useful thing available. It shows the file has restarted rather than stopped.

Income and stability

Employment duration, documented income, time at the current address. Unaffected by a proposal and doing a lot of the work.

Whether anything new has gone wrong

A clean file since completion reads very differently from one that has picked up new collections.

A completed proposal with two years of clean history behind it is a file most programs can work with. That is a genuinely different statement from what most people in this situation have been told.

Documents to have ready

• The Certificate of Full Performance, if completed
• The proposal document itself, or the trustee's statement, if still active
• A recent copy of your own credit report, so you can see whether the accounts have updated correctly
• Proof of income — recent pay stubs or a letter from the employer, or the statements that show benefit, pension or self-employed income
• Address history, usually two to three years

Applying with a consumer proposal on the file

Say so in the application. It is on the report and it will be read; a file that states it plainly and attaches the certificate is straightforward to place, and a file where it surfaces at underwriting costs a round trip.

Both insolvency routes are covered on bad credit car loans, which has sections on bankruptcies and on consumer proposals — they are reported on different schedules and lenders read them differently.