TLDR
Bankruptcy causes your credit score to drop to the lowest rating (R9) immediately
Record of bankruptcy stays on your credit report for 6-7 years (first bankruptcy) or 14 year (second bankruptcy)
You can start rebuilding your credit score immediately after filing
Credit score can begin improving within 12-24 months of filing with consistent habits
Alternatives such as consumer proposals (R7) have less impacts on your credit score
Although the prospect ofrebuilding credit after bankruptcy seems daunting, it is possible. Your credit score will have taken a significant hit, resulting in the lowest possible rating from the credit bureaus. On top of that, bankruptcy remains on a credit report for six to seven years on average. But following and sticking to a few smart financial tips can turn your situation around. Paying your bills regularly and on time, combined with a secured credit card option, can go a long way toward rebuilding your credit score.
While declaring bankruptcy is not something anyone does lightly, it’s important to consider the following:
- You won’t lose all your assets in a bankruptcy
- There are exemptions to what you surrender to your trustee
- The government lets you keep assets they feel are reasonable living expenses
- Bankruptcy is governed by the Bankruptcy and Insolvency Act (Canada), but while exemptions are set by provincial legislation
What happens to your credit score after declaring bankruptcy in Canada?
Declaring bankruptcy will lead you to receive the lowest possible credit rating (R9), requiring equal amounts of patience and discipline as you work to develop good budgeting and bill payment habits. Understanding the credit system is your first step towards financial recovery and credit restoration.
Credit score basics
A credit score is a three-digit number between 300 and 900 that helps lenders assess your credit risk. The higher your score, the better your creditworthiness and likelihood of being able to borrow money.
Credit Score Ranges:
- Excellent (760-900): Best rates and terms available
- Good (660-759): Qualifies for most credit products
- Fair (560-659): May qualify for credit rebuilding products
- Poor (300-559): Limited credit options, higher rates
Understanding credit ratings (R1-R9)
Credit scores impact your credit rating, which ranges from R1 to R9. R1 is considered perfect credit while R9 indicates bankruptcy and is the lowest possible rating.
For context, debts in a consumer proposal are coded as R7, meaning you’ve agreed to settle those debts with your creditors.
Reporting period
A credit rating reporting period is the timeframe during which financial institutions and creditors report your credit activity to credit bureaus such as Equifax and TransUnion. What’s reported reflects the status of your account(s) at that moment, zeroing in on your payment history, account balances, credit limits, account status and any late payments or defaults.
Key credit reporting timelines:
- Positive information: Stays in your credit report for up to 20 years with TransUnion and up to 10 years with Equifax
- Negative information: Typically remains in your credit report for six years (for example, late payments, bankruptcies)
- Collection accounts: Remain in your credit report for six years from the date of first delinquency
- Debt management plans: Removed from your credit report two years after settling debts
Impact on co-signers
Declaring bankruptcy will significantly impact your co-signer as they are responsible for 100% of your debt if you’re unable to repay it. Not repaying the debt will negatively impact your co-signer’s credit score and any late payments, collections or legal judgements will appear on their credit report. This makes the co-signer fully liable for the outstanding balance, potentially affecting their ability to secure credit or loans in the future.
Ability to get credit after bankruptcy
You can get credit after bankruptcy if you can demonstrate that you can stick to a budget and regular repayment schedule. Lenders look for stable income, on-time payments and responsible credit-usage over time.
Office of the Superintendent of Bankruptcy (OSB)
Once you declare bankruptcy, the Office of the Superintendent of Bankruptcy (OSB) records the filing on your credit report.They willassign an R9rating, which is the lowest possible credit rating.
The OSB oversees the bankruptcy process in Canada and ensures compliance with federal insolvency legislation.
Equifax and TransUnion credit bureaus
Equifax and TransUnion are the two main credit bureaus in Canada. They calculate your credit score based on factors such as whether you pay your bills on time and how much of your available credit you use. The higher your score, the higher your likelihood of qualifying for loans and credit. Both bureaus use slightly different scoring models and timelines for removing bankruptcy information from your credit report.
How long bankruptcy stays on your credit report
If you file for bankruptcy, it will remain on your credit report for anywhere from six to seven years for a first bankruptcy, depending on your province or territory, and 14 years for a second bankruptcy.
Equifax Canada credit reports
Equifax Canada removes a first bankruptcy from your credit report six years after the discharge date, or seven years after the date filed if no discharge date is recorded.
If you file another bankruptcy, the first reappears on your credit report and both bankruptcies appear for 14 years after their respective discharge dates.
TransUnion Canada credit reports
TransUnion removes a first bankruptcy from your credit report six to seven years from discharge, depending on your province or territory.
Provincial and Territorial Bankruptcy TransUnion Reporting Timeline
| Six Year Removal | Seven Year Removal |
|---|---|
| Alberta | Newfoundland and Labrador |
| British Columbia | Ontario |
| Manitoba | Prince Edward Island |
| New Brunswick | Quebec |
| Northwest Territories | |
| Nova Scotia | |
| Nanavut | |
| Saskatchewan | |
| Yukon |
With TransUnion, each second bankruptcy remains on your credit report for 14 years regardless of province or territory.
How to rebuild credit after bankruptcy
Although rebuilding your credit is challenging, it is possible and can begin as soon as you declare bankruptcy. Credit repair requires consistency, discipline and financial management over time.
Create and maintain a realistic budget
Start by creating a clear and realistic budget that reflects your income and expenses. Take note of every cost and limit or eliminate the unnecessary ones, ensuring that you have enough to cover your bills on time. A disciplined budget is the foundation of credit restoration and financial recovery.
Pay bills on time
Pay your bills regularly and on time. This helps show intent and consistency, reassuring your lenders that you understand responsible money management. Payment history is the single most important factor in your credit score calculation, accounting for approximately 35% of your score. Even one missed payment can significantly delay your credit rebuilding journey.
Use of secured credit cards
Get a secured credit card, which usually requires a cash deposit equal to the card’s credit limit. You could also consider co-signing a credit card with a close friend or family member. Secured cards report to credit bureaus just like traditional cards, helping you establish positive payment history while limiting your risk with the security deposit.
Credit-builder loans
Apply for a credit-builder loan. You’ll be able to borrow a small amount of money, making regular monthly repayments over a set period. The lender will then report your payments to the credit bureaus, helping you establish a positive payment history. Once repaid, the loan will help you attain a stronger credit profile and demonstrate your ability to manage installment debt responsibly.
Monitor your credit regularly
It’s essential to regularly verify your credit report, especially during the credit-rebuilding process. You can get a free copy of your credit report from Equifax and TransUnion and review them for any errors or discrepancies. Should you notice anything wrong, contact the respective credit bureau to have it corrected.
Follow these steps to verify your credit report using the RBC mobile app:
- Log in to the RBC mobile app
- Navigate to ‘My Services’
- Select ‘View Your Credit Score’ to access the CreditView dashboard
- If asked, accept any necessary agreement to view your TransUnion credit score
- Note: you can’t check your full credit report through the RBC app and will need to contact TransUnion or Equifax for a full and comprehensive report
Alternatives to bankruptcy
Filing for bankruptcy can seriously impact your finances and ability to meet your lifelong objectives and should be considered as a last resort. There are other debt relief options to consider if you’re still able to pay back your debts:
Consumer proposal
You may be able to work with a Licensed Insolvency Trustee (LIT) to create a consumer proposal, if you owe less than $250,000. Your LIT will work with you and your lenders to repay your debts over time. While this will affect your credit score, it won’t be as drastic as declaring bankruptcy. Take note that a consumer proposal will stay on your credit profile for the length of the agreement, plus a year or two, depending on your home province or territory.
Consumer proposal vs bankruptcy
| Factor | Consumer Proposal | Bankruptcy |
|---|---|---|
| Credit Rating | R7 | R9 |
| Duration on Report | 3 years after completion | 6-7 years (first) / 14 years (second) |
| Asset Loss | Keep most assets | May lose non-exempt assets |
| Court Involvement | Minimal | Required |
Debt repayment plans
Working with a professional credit counsellor, you can create a plan to consolidate some (but not all) debts. The counsellor will negotiate with your lenders and combine your debts into one more-manageable payment. Additionally, talking to a credit counsellor won’t affect your credit score. Credit counsellors charge various fees, which can change from agency to agency so be sure to ask about costs upfront.
Non-profit credit counselling is a great first step for anyone looking for options other than bankruptcy. It can provide free financial assessments and personalised debt relief alternatives. Additionally, a credit counselling program can help you course-correct your finances without needing to involve the courts. Canadians may find that working with a certified credit counsellor can help them avoid bankruptcy altogether.
FAQ
Yes, you can explore a few credit card options that may help you start rebuilding your credit after bankruptcy. These include secured credit cards — usually requiring a cash deposit equal to the credit limit — which report to credit bureaus just like traditional cards. You can also consider co-signing a credit card with a family member or trusted friend or becoming an authorized user of someone else’s credit card account.Secured cards are often the best starting point as they limit your financial risk while building a positive payment history. Most major Canadian banks offer secured credit card programs designed specifically for credit rebuilding.
Your credit score can begin improving within 12 to 24 months after discharge, depending on how consistently you rebuild credit.
Yes, you can qualify for a mortgage, usually 12 to 24 months after your bankruptcy has been discharged. However, you will likely have to put down a larger down payment and pay higher interest rates. Working with a mortgage specialist who understands post-bankruptcy lending can help you navigate the process and find the best available options.
You will likely start with a credit score in the low 500s following bankruptcy, receiving the lowest possible credit rating (R9). This places you in the “poor credit” category, which significantly limits your access to traditional credit products and loans. However, with consistent credit-building habits you can improve your score over time.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
