What Will Happen To My Credit Rating If I File For Bankruptcy?

The Impact of Bankruptcy on Credit Score: An In-Depth Analysis

When it comes to financial health, one’s credit rating plays a critical role. It’s the barometer that financial institutions use to ascertain your financial reliability. What will happen to your credit rating if you file for bankruptcy? This question has a multifaceted answer, which we’ll explore in this article.

Understanding Credit History

First, let’s delve into the concept of credit history. Credit history is a record of your financial behavior, documenting how you handle credit and debt. In Canada, this information is compiled by two key companies:

These companies evaluate your financial habits to generate a credit rating, which represents your financial health at a particular time.

The Role of Credit Rating

Credit rating is more than just a number. It is an analysis of your financial health that signifies the risk you pose to lenders compared to other consumers. The higher the rating, the lower the risk you present.

Bankruptcy and Credit Rating

When you declare bankruptcy, your credit rating takes a hit. In the North American Standard Account Ratings, bankruptcy is tagged as an R9 rating. This rating is considered the most damaging to your creditworthiness.

Duration of Bankruptcy on Credit Report

A first-time bankruptcy will stay on your credit report for six years from the discharge date—the day you complete your bankruptcy terms. If you file for bankruptcy multiple times, it could stay on your report for up to 14 years.

Consumer Proposal and Credit Rating

A consumer proposal, another debt resolution method, is given an R7 rating. It stays on your credit report for three years from the date you wrap up the proposal.

Rating Description

R0 Too new to rate; approved but not used
R1 Pays within 30 days of due date or not over one payment past due
R2 Pays in more than 30 days from due date, but not more than 60 days, or not more than two payments past due
R3 Pays in more than 60 days from due date, but not more than 90 days, or not more than three payments past due
R4 Pays in more than 90 days from due date, but not more than 120 days, or four payments past due
R5 Account is at least 120 days overdue, but is not yet rated “9”
R7 Making regular payments through a special arrangement to settle your debts
R8 Repossession (voluntary or involuntary return of merchandise)
R9 Bad debt; placed for collection; moved without giving a new address or bankruptcy

To Wrap Up

Your credit rating is an essential part of your financial health. Bankruptcy can significantly impact your credit rating, affecting how potential lenders view your financial stability. Before making any decisions, it’s crucial to understand these impacts thoroughly.

Understanding the implications of bankruptcy on your credit rating is instrumental in making informed financial decisions. Remember, knowledge is power, and in this case, it could be the key to your financial wellness.

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