Getting a Mortgage After Bankruptcy in Canada

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Getting a Mortgage After Personal Bankruptcy

Personal bankruptcy is a major financial setback, but it does not permanently bar you from the mortgage market. In Canada, thousands of formerly bankrupt individuals obtain a mortgage each year by following a disciplined rebuilding strategy. The key lies in understanding the timelines, lender requirements, and concrete steps to rebuild a solid credit file.

Required Timelines

The Bankruptcy and Insolvency Act (BIA), a fédéral statute, governs the bankruptcy process in Canada. After discharge, the R9 notation (the most severe) remains on the credit file. At Equifax Canada, retention is 6 years after discharge for a first bankruptcy and 14 years for a second. At TransUnion Canada, retention is 7 years after discharge for a first bankruptcy and 14 years for a second. These timelines apply automatically and cannot be shortened by the credit agency.

R9 rating: The R9 notation in the Canadian credit rating system indicates a bad debt, placed in collections, or bankruptcy. It is the most negative rating possible assigned to an account.

Credit Rebuilding Strategy

Get a secured credit card: Upon discharge, apply for a secured credit card from a Canadian financial institution. A $500 to $1,000 deposit serves as collateral. Use it for small regular purchases and pay the full balance every month without exception.
Maintain a low utilization ratio: Keep your credit utilization under 30% of available limit. If your card has a $1,000 limit, never exceed $300 in balance. This ratio is a major factor in credit score calculation.
Add a secured loan: After 6 to 12 months of good management of your secured card, consider a small secured loan from a credit union or bank. Credit type diversity improves the score.
Build your down payment: Start saving systematically for your down payment. Regular saving will also demonstrate financial discipline to lenders. The FHSA can be a valuable tool if you are a first-time buyer.
Prepare your mortgage file: After 2 years of rebuilt credit, consult an AMF-certified mortgage broker in Quebec to assess your eligibility and identify the most favourable lenders for your profile.

The Mortgage Broker's Role in Rebuilding

The AMF-certified mortgage broker in Quebec plays an essential role for formerly bankrupt individuals. Unlike advisors at a single institution, a broker has access to a wide network of lenders, including Schedule I banks, credit unions, trust companies, and alternative lenders. The LDPSF requires the broker to act in the client's best interest, which means finding the most suitable mortgage product for the borrower's profile, even when that profile is complex. The broker can also guide you on the optimal time to submit your application and on improvements to make to your file before submission.

Bankruptcy is a starting point, not a destination. With a disciplined rebuilding strategy, clear goals, and guidance from a certified professional, homeownership remains an entirely achievable objective in the years following a bankruptcy.

Frequently Asked Questions

How long after bankruptcy can I get a mortgage?

In practice, you generally need to wait at least 2 years after discharge for a conventional lender to consider an application. B lenders may act sooner but at higher rates. CMHC generally requires a minimum of 2 years post-discharge with rebuilt credit to insure the loan.

How do I rebuild my credit after bankruptcy?

Key steps include: obtaining a secured credit card ($500 to $1,000 deposit), using it monthly for small purchases (under 30% of the limit), paying the full balance every month, and eventually adding a small secured loan. After 12 to 24 months of exemplary behaviour, the score begins to rise significantly.

What down payment is required after bankruptcy?

With a conventional lender and CMHC insurance, the minimum down payment is 5% (same as any borrower). However, many lenders require 10% to 20% for files with a bankruptcy history. B lenders generally require 20% or more and do not offer insured loans.

Does bankruptcy affect my debt ratios for qualification?

The bankruptcy itself is discharged, but lenders and OSFI (Guideline B-20) consider the overall credit file, including the bankruptcy history. GDS (32%) and TDS (40-44%) ratios remain the same, but lenders may be more conservative in their risk assessment.

Are there special programs for people who went through bankruptcy?

Some B lenders and private lenders specialize in post-bankruptcy files. Credit unions and community financial literacy programs also offer support. In Quebec, les associations cooperatives d'economie familiale (ACEF) provide free budgeting counselling services.