By Chelene Riendeau, CIRP, LIT, Vice President, Consumer Insolvency, MNP Ltd.

You’ve issued the debtor a Certificate of Discharge or a Certificate of Full Performance and have sent them off, free from debt and with a fresh start. Will the debtor truly receive the fresh start they are entitled to, or will they encounter errors and inaccuracies on their credit report and then experience a multitude of difficulties correcting those errors? The issues debtors experience with their credit reports are not new, and have been ongoing for years. Unfortunately, the parties and the system responsible for reporting and updating information do not appear to be improving their practice to prevent ongoing inaccuracies. As the LIT, have you prepared the debtor for the potential issues they may face with their credit report both during and post insolvency?

Having good credit is important and the impact a bankruptcy or proposal has on an individual’s credit score is arguably one of the main reasons a debtor may be reluctant to file a formal insolvency proceeding. One can only imagine the disappointment and frustration a debtor experiences after making the difficult decision to file a bankruptcy or a proposal only to discover that either during or after they have completed the process, the information on their credit report is incorrect and their credit score is negatively impacted as a result.

The two main credit bureaus in Canada - Equifax and TransUnion, collect, store, and share information about how people manage their credit. Most provinces have credit reporting legislation which outlines the practices that must be adopted by the respective agencies and the users of the credit information to protect the rights of the consumer.

A consumer reporting agency owes duty of care to a consumer about any consumer report it publishes concerning the consumer. The applicable standard of care requires credit reporting agencies to carry out their functions honestly, accurately, with skill and diligence, and in accordance with their statutory obligations. Haskett v Equifax Canada Inc. (2003), 63 OR (3d) 577 (CA); Bakich v. Equifax Canada Inc. [2008] OJ No 5562 (SCJ Sm Cl Ct).

In an insolvency context, the public record is reported by the Office of the Superintendent in Bankruptcy regarding the debtor’s filings and discharge. Creditors are required to report the status of the account and that the debt is included in the bankruptcy or proposal. Creditors should not be continuing to report delinquencies and payment arrears during the bankruptcy or the proposal. However, far too often information is not updated and is reported incorrectly. Despite the standard of care the credit reporting agencies are held to, there is an apparent lack of accountability placed on the creditors or third parties to report accurately.

Common issues debtors have been facing with errors on their credit report

The following list of credit reporting errors is not exhaustive and merely sets out the most common mistakes noted by colleagues:

• Significant delays in updating the credit bureaus after discharge
• Creditors reporting delinquencies and deficiencies actively during the insolvency filing
• Creditors failing to update the notation to indicate an account is “included in bankruptcy” or “written-off”
• Late payments being recorded past the time of the insolvency filing
• Incorrect dates (ie. Certificate of Full Completion date is often incorrect when a proposal is paid out sooner)
• Duplication of public records
• Consumer proposals rated as R9 (bankruptcy) instead of R7 (proposal/settlement)
• Consumer proposals noted as “bankruptcy proposal” or “proposals in bankruptcy” which is misleading to the reader of the report
• Proposal or bankruptcy negatively impacting a joint debtor’s report even though the joint debtor did not file
• Certain government debt reporting as deficient during the insolvency filing, even if the debt survives, and continuing to report as deficient until a copy of the Trustee’s discharge is provided. This causes significant impairment on the debtor’ credit rating, particularly in a five-year consumer proposal
• Reporting a secured debt (a car loan) as included in their bankruptcy when the debtor retains the vehicle and is maintaining the payments

These mistakes can have a significant impact on a debtor’s credit score and can subject the debtor to unfair treatment by creditors or other parties. Credit reports are relied upon for obtaining credit as well as non-credit related uses such as employment applications, housing and rental applications, household utilities and telephone services, and life, vehicle, and other insurance applications. These errors may prevent the debtor from qualifying for a mortgage or a loan, a landlord may refuse to rent an apartment to the debtor, utilities may be denied, or the debtor may be subject to additional costs by only qualifying for a higher interest rate loan given their impaired credit score.

The challenges trustees are seeing

As the debtor’s LIT, we are often the first person they turn to for assistance in fixing the errors on their credit report. Due to privacy issues, we cannot communicate directly with the credit bureaus with respect to the debtor’s creditors or the status of their insolvency. Therefore, we are limited in the assistance we can provide.

Both Equifax and TransUnion have free dispute resolution processes, however these processes can be time consuming, often resulting in the debtor becoming discouraged or simply giving up.

Common challenges we, as trustees, see:

• Unsophisticated debtors with insufficient resources or capabilities to work through the dispute process
• Language barriers with new Canadians who may have difficulty understanding their credit report, let alone understanding the dispute process
• Creditors not following the rules
• Provinces having different credit reporting rules
• Limited education available regarding credit reports
• Credit bureaus recommending the debtor call the creditors, who then pass them back to the trustee
• Debtors not understanding or not following recommendations provided by the trustee regarding their options to ensure proper reporting

These problems are common and occur so frequently that we and/or our teams are spending a significant amount of time assisting the debtor, often long after the file has been closed and we have been discharged from the file.

What are the best practices for trustees to deal with this?

Educate yourself. Understand how to read both Equifax and TransUnion credit reports so you can identify errors and provide guidance to the debtor. Ensure you are providing correct information and that you have prepared the debtor for the commons mistakes they may encounter. Prepare the debtor for the length of time the dispute resolution process may take and that the corrections will not happen overnight.

Additional tips/best practices:

• Discuss credit reports and potential reporting errors at multiple times during the insolvency process (at the time of filing of the assignment or consumer proposal, at the second counselling session, and at discharge)
• Provide a template letter/email to the debtor that includes detailed, written instructions about how and when to check their credit report together with the credit reporting agencies’ contact information
• Advise the debtor to check their credit report regularly. By doing so, they can take appropriate action to have the mistakes corrected in a timely manner. Be sure to let them know that it is a misconception that checking their credit report impacts their credit rating
• Explain the difference between the two credit bureaus and the financial tech apps such as Credit Karma and Borrowell
• Advise the debtor that there is no cost to filing a dispute and they can file as often as they wish
• Have the debtor contact the creditor/lender and request that their account be updated
• If a creditor is refusing to acknowledge or honour the stay of proceeds and/or is reporting improper information, provide the contact information for the Office of the Superintendent in Bankruptcy to allow the debtor to file a complaint
• If the debtor has the financial means to pay for professional assistance, recommend that they seek out credit experts who specialize in fixing credit reports or seek legal advice regarding the possibility of bringing a court action against the credit bureaus for damages suffered.

In conclusion, credit reporting errors are having a significant impact on debtors. There is a lack of accountability on the part of the parties responsible for the reporting of accurate information. While our role and function in the insolvency process is one of neutrality, it is difficult not to advocate for the debtor in these circumstances.

Acknowledgement: I had the pleasure of interviewing Guylaine Houle, BCL FCIRP, of Pierre Roy & Associates Inc., Montreal, QC, Jennifer McCracken, Partner at BDO, Vancouver, BC, Jillian Anderson, Senior Estate Administrator at MNP, Red Deer/Stettler, AB, and Richard Moxley, of Credit Expert, Calgary, AB, who shared their knowledge, insight, and experience on the subject matter. Thank you for your time and input to this article.