Rebuilding Credit After Bankruptcy or Consumer Proposal
Going through a bankruptcy or consumer proposal is a major financial setback, but it does not end your path to homeownership. In Canada, the Bankruptcy and Insolvency Act (BIA) rigorously governs these processes, and thousands of Canadians successfully rebuild their credit and obtain new mortgage financing every year. The journey requires patience, discipline, and a clear strategy.
How Long Insolvency Stays on Your Credit Report
The duration an insolvency event remains on your credit report with Equifax and TransUnion Canada varies by type. A first bankruptcy stays on file for six years after the discharge date. A second bankruptcy remains for fourteen years. A consumer proposal is removed three years after the last payment made, or six years after the filing date, whichever comes first. Quebec residents benefit from certain additional protections under the Civil Code of Quebec (CCQ), particularly regarding the family patrimony and principal residence.
Step-by-Step Rebuilding Plan
- Obtain a secured credit card (months 1 to 3): As soon as you receive your bankruptcy discharge or during your proposal, apply for a secured credit card from a Canadian financial institution. A deposit of $500 to $2,000 serves as collateral. Use it for small, regular purchases (fuel, groceries) and pay the full balance every month. This discipline is the cornerstone of your rebuild.
- Maintain utilization below 30% (ongoing): Credit bureaus evaluate your credit utilization ratio, which is the balance-to-limit ratio on your accounts. Keep this ratio below 30% at all times. For example, with a $1,000 limit, never carry a balance above $300 before payment.
- Add an instalment loan (months 6 to 12): After six to twelve months of impeccable secured credit use, add a small instalment loan (personal loan or RRSP loan). Diversifying credit types (revolving credit plus instalment credit) improves your score faster than revolving credit alone.
- Apply for an unsecured credit card (months 12 to 18): Once your score climbs above 600, apply for a regular unsecured credit card. Some issuers like Capital One and Canadian Tire offer accessible cards for people in the rebuilding phase. Keep your secured card open to maintain the account's age and history.
- Monitor and correct your credit file (ongoing): Obtain your free credit report from Equifax Canada and TransUnion Canada every year. Verify that all information is accurate, that debts included in the bankruptcy or proposal are properly noted, and dispute any errors immediately.
- Plan your mortgage application (months 24 to 36): With a score above 680 and two to three years of re-established credit, start exploring mortgage options with an AMF-certified broker. The broker will assess whether you qualify for A lenders or should start with a B lender.
Post-Insolvency Mortgage Financing Options
The Canadian mortgage market offers several tiers of financing for borrowers in recovery. A lenders (major banks, Desjardins, credit unions) typically require a score of 680 or higher and at least two years of re-established credit. B lenders (Equitable Bank, Home Trust, MCAP) accept applications as early as two years post-discharge with a score of 600 or higher, but charge higher rates (often 1% to 3% above A rates) and require a minimum 20% down payment since CMHC insurance is generally unavailable. Private lenders in Quebec, regulated by the AMF, can finance even sooner, but at significantly higher rates (7% to 12%) and for short terms (1 to 2 years), serving as a transitional solution.
Rebuilding credit after insolvency is a marathon, not a sprint. Every payment made on time and every month of financial discipline brings the borrower closer to the goal. Data from the Office of the Superintendent of Bankruptcy Canada shows that the majority of individuals discharged from a first bankruptcy can achieve a viable credit score for mortgage qualification within two to four years of discharge.