Cooper & Co. Ltd Discusses Credit Rating Impact of Bankruptcy and Consumer Proposal

September 3, 2016 - The prospect of bankruptcy raises many questions and misconceptions. In its latest blog post, Cooper & Co. Ltd discusses one of the most common questions asked of Licensed Insolvency Trustees, "How is my credit rating affected if I file a bankruptcy or a proposal". The company explains the various credit ratings in Canada and just what they mean.

It is important to known that bankruptcy and a Consumer Proposal are different things. The legal term bankruptcy means a person is not in a position to repay debts owed to creditors, it can be imposed by a court or initiated by a debtor. A Consumer Proposal on the other hand is a legally binding agreement where the debtor pays a certain percentage of the debt to creditors or extends the time to pay. This process is initiated by a Licensed Insolvency Trustee (LIT) on behalf of the debtor.

There are nine levels of "R" rating for bankruptcy recognized by credit bureaus in Canada. This is a "revolving" rating that the union uses to define the level of payment needed to be made. Nine is the lowest rating (bankruptcy), while a proposal (known as a Consumer Proposal) is a level R7 rating:

R0: insufficient credit history to garner a rating (someone new to the credit world)

R1: your payments to the creditor in question is on time

R2: You have at least one payment that is 30 days late

R3: You have at least one payment that is 60 days late

R4: You have at least one payment that is 90 days late

R5: You have at least one payment that is 120 days late

R6: Not used

R7: Indicates that you have entered into some kind of written arrangement with your creditors to settle your debts (including a Consumer Proposal, a debt settlement/management plan) and that arrangement has been completed

R8: Indicates action has been taken by a secured creditor to realize on its security (i.e., a repossessed car). Often this is in reality recorded as an R9 instead, as the secured creditor has taken a loss on the security after liquidating it, and has then begun a legal action (lawsuit) to collect

R9: Bankruptcy filing or an uncollectable debt, or written off as a bad debt

The R9 rating for bankruptcy is automatic and is registered for 6 or 7 years on your credit report depending on the credit bureau.

"For a proposal, the rating issued is an R7 for 3 years after the completion of the proposal. (Some credit agencies register an R9 as a hold until the proposal is completed) Consumer proposals can be up to 60 months in length, but they are also open terms, so you can pay it off any time you like or are able with no penalties. Obviously it is beneficial to do so, as the R7 for 3 years is statutory."

Cooper & Co. points out that filing for bankruptcy or preparing a proposal is an important decision. The company says that both can have an impact on a credit rating. However, these options are typically taken by consumers who already have a poor credit rating, even if they are unaware of it. The company adds that getting free of debt is more important.

About Cooper & Co. Ltd
Cooper & Co. Ltd is a Bankruptcy Trustee firm. The company has been in the debt relief industry for over three decades. Over that time, Cooper & Co. has helped over 15,000 clients to escape from debt and understand how to maintain a healthy financial state.

Cooper & Co. Ltd.
1120 Finch Avenue West
Suite 108
Toronto, Ontario
M3J 3H7
(416) 665-3383