This device, called a Consumer Proposal, is different from bankruptcy, and gives the debtor some significant advantages over bankruptcy or paying the debt back over the full terms of the loans.

The advantages to the consumer with a Consumer Proposal are that:

1. The interest rates on all debt are frozen.

2. The consumer is able to negotiate to repay a portion of what (s)he owes, if the creditor agrees.

3. Creditors are unable to take legal action against you, and the credit bureaus stop calling.

4. Any wage garnishments in place, except those for child support or alimony, are ended immediately.

5. A majority of your creditors must agree to your proposal or it is void. However, if a majority (over 50%) agrees, then all creditors are considered to have accepted.

6. The maximum time period for paying the debt is 5 years.

7. The credit ranking for a consumer proposal is slightly better than that of bankruptcy.

With a consumer proposal, the debt is not eliminated, but is nearly always reduced. The creditor agrees to make payments of a certain amount each month for a specified length of time.

With bankruptcy, the debtor is determined to be insolvent; in other words, owes at least $1,000 and is unable to make payments when they are due.

In the case of bankruptcy, there are limits on the value of personal belongings, household goods, tools for work, farm tools and vehicles that a person in bankruptcy is allowed to keep. If the value of any of these items exceeds the moderate limits set by statute, then the debtor is required to liquidate them and divide the money between the creditors.

Additionally, a bankruptcy involving assets over $10,000 are reported in the newspaper and the mark stays on the creditor’s credit report for seven years.

However, creditors do stop calling, and the debtors are allowed to keep all wages after the filing, allowing them to make a new start.

If the debtor has the ability to make payments under a consumer proposal, it is often a better choice, since creditors can oppose a bankruptcy discharge if a debtor had the means for a consumer proposal and chose not to utilize it.

The affect on the credit score of the debtor is also lower with a consumer proposal.

Since the beginning of this 8 steps process to repair your credit bureau until step 8, there is a time delay of about 2 years. If you went really bad on your credit cards and you have several bad debts, the process may be longer. Re-establishing confidence with banks and credit card companies takes time and effort. If they usually give you a chance for your first request, if you didn’t pay them, they will wait awhile to lend more money.

At the 8^th step, you should be in a much better financial position. Your debts should be always paid on time; they should have been decreasing since you are using the snowballing method (to be explained in a later post) and your credit score should be increasing as well.

With good credit comes great temptation. You will start receiving credit card offers and pre-approved loan letters. Throw them in the garbage! There is nothing worst than applying to more credit cards or taking credit simply because someone is offering it to you.

Since you made so many efforts to repair your credit bureau, you should definitely follow-up with credit reporting agencies every year to make sure that everything is in order. Make sure that your bad credit rating are being erased on time and that there is no mistake shown.

I would say that banks, credit card companies and loan companies are pretty fast to report late payments but they may sometimes take their sweet time before reporting that the debt has been paid of and cleared. This is why it is so important to double check each item on your credit bureau.

By ordering your credit report every year, you make sure that your Beacon score will increase accordingly to your efforts. It is also motivating to see your progression from year to year and to finally see that your efforts show on a piece of paper.

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You want a new kitchen table? Plan it in your budget and put money aside until you can pay it off completely without using your credit card.

If you were able to get to this point, this means that you were able to identify what went wrong in the first place. Keep it on a post it that you will tag on your budget sheet. This will help you remind how you got into financial trouble and how hard it was to get out of debts.

You may have to change friend

As it is the case of any of our habits, we are influenced by friends and family. If people around you have spending problems or they are maxed out and looking for money all the time, this may be the time to say goodbye and take a new start. This will surely be hard, but if you change your lifestyle, you will ultimately create a trench between you and them. How come an individual that is always buying more and more stuff on his credit card could understand one that is saving systematically and thinking twice before going out? Flirting with bad influences is the best way to get back into the abyss of debt.

So you have 2 options: either you split up or you convince them to go your way. By sharing your savings goals, you may be able to help each other and achieve them faster. This will be also helpful to have somebody to talk too when you are depress or discouraged in front of all your debts. Repairing your credit is not an easy task!

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This is why it is important to have a line of credit on the side. Some people might think that it is kind of controversial to ask somebody with a bad credit history to ask for a line of credit but the purpose is not to max it out.

It is obvious that this product should not be used for debt consolidation, vacation or to buy the new 65’ ACL HD TV. The temptation might be there, but you should be able to resist by now. Having a systematic saving plan and your credit cards paid off, it is now the time to establish a solid financial plan. Instead of leaving 5k-10k in a savings account barely making the inflation rate, I suggest that you open a line of credit and leave it at 0.

This is not going to be easy

Asking for a line of credit after bad debts will not be a walk in the park. Most banks will probably decline your application if you submit it too fast. Wait until you paid off your credit cards and that you can show steady saving habits. You must have a new credit card that you use every month (and that you are paying the balance monthly too!). If you apply and your credit report still sucks, you won’t get anything done properly.

This is why asking for a line of credit should happens only a year minimum after you cleared your bad debts and you cleaned up your credit bureau. I would suggest that you order a credit bureau before asking for a line of credit. If your Beacon score didn’t go up higher than 675, you are better off waiting another 6 months before applying for a line of credit.

If you are in a hurry to get your stuff in place, you can always ask for a co-signor in order to facilitate the process. A good co-applicant is an individual with a good and steady income compared to his level of debts. This means that he has a Total Debt Servicing Ratio (TDSR) below 35%. In order to get a quick figure, take all the financial obligations (mortgage payment, taxes, rent, lease, personal loan payments + 3% of credit cards and line of credit balance) and divided by the gross monthly income. This will give you the TDSR.

In addition to have a good TDSR, a good co-signor must also have a positive net worth. People with negative net worth are “technically bankrupt” since they don’t have enough asset to pay back creditors if they would ask for the due.

The final point (but the most important), a good co-applicant on a loan or a line of credit is one that has a stellar credit report. Therefore, you are better off requesting a credit report for your co-applicant before trying anything. This is how you will see if you application will stick down the road. The worst thing is to go to a bank and get declined. Once a financial institution said no, it is much harder to get approved elsewhere. The goal is to get approved on the very first try.

Then again, remember that the line of credit is to be used as an emergency fund and not for buying goods. It should be left as dead until you really need it. Remember, pay yourself first!

Unless… they are able to prove that they have become good (read reliable) customers.

Depending on the level of your credit rating (R2, R3, R4, R9), you credit cards might have been cancelled. Since credit cards represent the best way to improve your credit score, you absolutely need one in order to establish some level of trust with a financial institution. Since nobody will ever lend you a penny again, you might be required to advance money upfront. This is called a secured credit card.

Some financial institutions offer GIC backed credit card to people who had bad credit and want to rebuild their credit score. This is where the Pay yourself first technique will come handy. Since you need a few hundred bucks before getting a new credit card, you have to setup a saving system first.

Most secured credit cards come with a $500 limit backed by at a $500 guaranteed interest certificate. Depending on your situation, they may ask for $1,000 or $1,500 to cover the $500 limit. Is this exaggerated? Not if you consider that the statistics on credit delinquency show that people with a low credit score are more likely to be late on their payments again in the future. This is probably not your case, but no facts are actually in place to prove you right. Since it’s the only way to rebuild your credit in a timely fashion, you have no other choice but to order your secured credit card.

Now, you must use it

If you order your credit card and leave it in your drawer, there is no indication that you are able to manage a revolving account. The key is to make small purchase with your card every month and pay off your bill on time. This will show that you are able to borrow money and pay it back on time.

If you are not sure how to spend the money, simply pay your grocery bill with your credit card and increase your “pay yourself first” payment by the same amount. At the end of the month, you will get your bill and you will have sufficient money put aside to pay it back.

Credit cards companies are reporting your credit activity on a monthly basis. This is why using a credit card on a steady basis will help improving your credit score. Your Beacon score will surely not increase within the first few months but this technique will definitely show some result after a year.

Remember, it takes year to build trust and only a few second to break it. Credit rules obey to the same law.

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