You might be wondering, will filing for bankruptcy affect your credit score? The short answer is yes, but maybe not the way you think. When you file for a consumer proposal or bankruptcy, it will appear on your credit report for several years. Understanding exactly how long and what that really means for your financial future can help you make an informed decision.
Does Filing Bankruptcy Hurt Your Credit? Understanding the Timeline
In Canada, there are two major credit reporting agencies: Equifax and TransUnion. Each has different reporting timelines for bankruptcy and consumer proposals. You can access your credit reports for free through both agencies to see exactly what's on your file.
For Equifax, a first-time bankruptcy will remain on your credit for six years from your discharge date. For TransUnion, it's six to seven years depending on the province. Here in Ontario, it's seven years from your date of discharge.
For both Equifax and TransUnion, second-time bankruptcies will remain on your credit for 14 years from their respective discharge dates.
How Does a Consumer Proposal Affect Your Credit?
Consumer proposals come off much sooner than bankruptcies. For Equifax, it's six years from the day you file or three years from the day you complete the proposal, whichever comes first.
For TransUnion, it's six years from the date of default on the account or three years from the day you complete the proposal. In both instances, it's a maximum of six years.
Does Bankruptcy Affect Credit Score? The Reality Behind the Numbers
Here's what most people don't realize: for most people considering bankruptcy or a consumer proposal, their credit is already being impacted by late or missed payments, high balances, or even collection items.
Filing for debt relief actually gives you the chance to stop the cycle, rebuild your finances, and improve your credit over time. Your credit score has likely already taken hits from the financial struggles that brought you to this point.
How Will Bankruptcy Affect My Credit Score? It's Actually a Reset
So is debt relief bad for your credit? Not necessarily. It's a reset. Once your debts are dealt with, you can focus on rebuilding through:
- Making consistent payments
- Using credit responsibly
- Watching your credit score rise over time
Most people are surprised to learn how quickly they qualify for new credit or even a mortgage after completing their proposal or bankruptcy. The key is being strategic about rebuilding your credit.
Taking Control of Your Financial Future
We know talking about debt can feel uncomfortable, but you're not alone. Help is available and Licensed Insolvency Trustees are always here to listen.
Understanding how bankruptcy affects your credit is an important step, but it shouldn't be the only factor in your decision. The relief from overwhelming debt and the chance to start fresh often outweigh the temporary impact on your credit report.
If you're struggling with debt and wondering about your options, speaking with a Licensed Insolvency Trustee can help you understand the full picture. We'll review your situation, explain how different debt relief options work, and help you make an informed decision about your financial future.