If you are considering filing for bankruptcy or a consumer proposal in Canada, it is essential to understand how these actions can impact your credit rating. While as Licensed Insolvency Trustee (LIT) are licensed to oversee and assist debtors with the insolvency process, we also understand the potential challenges debtors may face with their credit report. Unfortunately, inaccuracies and errors on credit reports are common. As LITs we have limited ability to correct these issues, but we can assist debtors in understanding their rights. Ultimately though, it is the responsibility of the credit bureaus to ensure accurate reporting and for you, as the debtor, to advocate for yourself.
The Impact on Your Credit Score
Good credit is vital, and the effect of bankruptcy or a consumer proposal on your credit score is often a significant concern for debtors. After making the difficult decision to file either a bankruptcy or a proposal to help improve your credit score, discovering errors on your credit report that negatively impact your credit score can be incredibly frustrating. The two main credit bureaus in Canada, Equifax and TransUnion, are responsible for collecting, storing, and sharing information about your credit management. However, errors are common, and it is essential to be prepared to address them.
Common Credit Report Errors
Here are some frequent mistakes that can occur on credit reports during and after insolvency:
- Creditors incorrectly report delinquencies during the insolvency process.
- The credit bureaus experience delays in updating information after discharge.
- Accounts are often not marked as “included in bankruptcy” or “written-off.”
- Late payments are sometimes inaccurately recorded after the insolvency filing.
- Dates, such as the Certificate of Full Completion date, are frequently wrong.
- Public records can be duplicated.
- Consumer proposals are often rated incorrectly as bankruptcy (e.g., R9 instead of R7).
- Notations like “bankruptcy proposal” can be misleading and does not apply to Canadian laws
- Joint debtors who did not file for joint insolvency proceedings may still be impacted.
- Government debts are sometimes incorrectly reported as deficient.
- Secured debts, like car loans, are wrongly included as part of the bankruptcy.
These errors can significantly affect your credit score and lead to unfair treatment in various situations, like being denied when subsequently applying for credit, employment, housing, utilities, and insurance.
The Role of Licensed Insolvency Trustees and Debtors Credit Report
As an LIT, we are the first point of contact for debtors seeking help with credit report errors. However, as an LIT we are not credit granters and cannot report directly to the credit bureaus on behalf of debtors. Additionally, privacy issues limit our ability to communicate directly with credit bureaus about debtor’s creditors or the status of their insolvency.
As an LIT, we report directly to the Office of the Superintendent of Bankruptcy which is a Canadian Federal Government agency. The OSB then has on obligation to report directly to each credit reporting agency with the details of the formal insolvency proceeding for each debtor.
We encourage debtors to review their own reports to be sure that their personal information and insolvency proceeding is reflected properly. Often however, debtors do find errors.
We can assist debtors in using the free dispute resolution processes provided by Equifax and TransUnion – but fair warning, these dispute processes can be time-consuming and discouraging.
Common Challenges for Credit Reports After Debtors File an Insolvency Proceeding:
- Different provincial credit reporting regulations and rules and limited willingness of the credit agencies to educate the populace on internal process and debtors individual rights.
- Credit bureaus not responding to requests by debtors to fix errors, but rather just re-directing debtors back to creditors or trustees when the error lies with the reporting agency.
- Complicated dispute processes requiring debtors to have significant skill and capabilities to navigate the dispute process
- Language barriers for new Canadians and lack of understanding of the Canadian legal process – new Canadians are often “afraid” of “government” agencies.
- Debtors not following trustees’ recommendations
- Limited information available or provided and just how credit reports work and how to interpret them – which provides opportunity for bad actor or unnecessary fees charged to debtors
- Creditors not following reporting rules
As your LIT, C.E. Craig & Associates Inc, strives to :
- Provide information to help you understand your Equifax and TransUnion credit reports and identify possible errors.
- Explain common credit reporting issues that can occur following a bankruptcy or consumer proposal and discuss the dispute resolution process.
- Provide you with the contact information and dispute procedures for Equifax and TransUnion and assist you in understanding your credit reports.
- Explain the differences between official credit reports and consumer financial apps such as Credit Karma and Borrowell.
- Provide copies of your bankruptcy or consumer proposal documents, including your Certificate of Discharge or Certificate of Full Performance, to support any dispute you may submit to a credit reporting agency.
- Explain the respective responsibilities of the Licensed Insolvency Trustee, the Office of the Superintendent of Bankruptcy, creditors, and the credit reporting agencies regarding insolvency reporting.
- Where appropriate, recommend that you obtain independent legal advice if a credit reporting issue cannot be resolved through the normal dispute process.
How insolvency information reaches your credit report
Your Licensed Insolvency Trustee files your bankruptcy or consumer proposal with the Office of the Superintendent of Bankruptcy (OSB). The OSB maintains Canada’s official insolvency records and provides information regarding insolvency filings and discharges to the recognized credit reporting agencies. Individual creditors are responsible for reporting the status of their own accounts, while the credit reporting agencies are responsible for maintaining your credit report and investigating disputes about its accuracy. The OSB does not investigate credit reporting disputes or require creditors or credit reporting agencies to correct information appearing on a consumer’s credit report
Conclusion
Credit report errors can significantly impact the credit repair process after filing a consumer proposal or bankruptcy. Often as LIT’s we see that there is a lack of accountability for ensuring accurate reporting. As LITs, although we cannot force the credit agencies to correct their errors, we can provide guidance and support to debtors facing these challenges. We hope to offer practical advice to debtors while also advocating for accurate reporting to help mitigate the negative effects on debtors’ credit scores.
How to Dispute Equifax : https://www.consumer.equifax.ca/personal/dispute-credit-report/
How to Dispute TransUnion: https://www.transunion.com/credit-disputes/dispute-your-credit
