A bankruptcy (BK) or consumer proposal (CP) agreement could impact a borrower’s ability to rent or own a home. However, often these options are helping people clean up overwhelming debt which would also provide barriers to credit and rental options. There are several common sense options for people who want to pursue home buying or renting after or during a consumer proposal.
For anyone who has entered into a proposal agreement t is helpful to know the basic statistics about insolvency and understand that CPs are growing in popularity. Consumers need to comprehend the ways in which a CP will impact their situation.
Canada Bankruptcy Stats
Recent figures reveal a trend in Canada’s BK and CP filings. Data from 2016 showed that slightly more than 125,000 people filed at least one insolvency proposal. During that same year, however, CPs were trending up at an annual rate of 7 percent, year-to-year. This compares to bankruptcies, which were trending slightly down. For the first time in Canada’s history, consumer propsoalss outnumbered bankruptcies in 2016, and that trend is expected to continue.
Key Points for Home Buyers/Renters
-Consumer proposal (CP) differs from standard bankruptcy in several ways. Though both actions need to be approved by a licensed insolvency trustee, a bankruptcy remains part of your credit history for at least seven years. A consumer proposal remains for only three years after you complete the repayment agreement.
-Consumer proposals are not a straight discharge of all unsecured and non-exempt debt, as is the case in a bankruptcy. On the contrary, consumer proposals are carefully structured repayment agreements that require monthly payments of a portion of your original debt. Consumer proposal must be repaid in five years or less.
-The faster you fully pay a CP agreement, the easier it will be to buy or rent a home. Lenders are more willing to offer competitive interest rates to consumers who demonstrate consistent repayment behavior within the CP agreement.
How to Maximize Chances of Loan or Rental Approval
After a CP repayment plan has started, consumers can improve their chances for loan or rental approval by doing the following:
-Minimize your risk profile by actively working on your financial situation.
-Use credit responsibility. Lenders will usually closely examine your behavior since the CP was filed and approved. Even if you only have one credit card or retail account, don’t miss a single payment. This rule also applies to the repayment plan within the consumer proposal.
-Attempt to maintain a stable employment history after the CP goes into effect. Typical industry guidelines consider two years at the same job as a minimum definition of “stable.”
-Keep written proof that you are managing our finances wisely. Some lenders will ask to see your monthly budget and banking statements. Keep meticulous records and if possible, use approved household budgeting practices as outlined in authoritative financial literature.
-Save for a down payment. Even if you don’t plan to buy, a savings account with regular deposits will improve your overall credit profile. If you do intend to purchase a home, a savings account is a must. If you are able to amass 20 percent of a home’s purchase price, you will be able to get more favorable interest rates from lenders.
-Use your monthly budget and current income levels to calculate a realistic price range for the house or rental property that you want. A common mistake is to overestimate the size of a loan for which you can be approved. Be realistic and take every monthly expense into account when arriving at the price range for your future home or rental.
-Avoid dealing with finance companies because their interest rates are significantly higher than bank rates. CP filers are sometimes attracted to finance companies for the simple reason that approval is easier than it is with banks. That easy approval comes with a high cost in the form of interest rates as high as 38 percent.
After filing for any type of insolvency, the goal of home ownership or rental is still a realistic one. The essential component of a successful loan or rental application is planning. All the best advice for CP filers can be summarized in two sentences: Keep detailed budgets and financial records. Maintain stable employment and avoid credit balances above the bare minimum and pay all bills on time. Paying off a CP sooner than the five-year time window will also help improve chances for obtaining a home loan or rental agreement.
For more information about renting and owning a home after or during a consumer proposal bankruptcy filing in Canada, please call Kevin Thatcher & Associates Ltd. at 1-866-719-8547, or contact us here.