Getting a Mortgage After Bankruptcy or a Consumer Proposal

A bankruptcy or consumer proposal doesn't rule out owning a home, but it starts a clock: two of the mortgage insurers count their waiting periods from the day it ends, and your credit reports show it for years. Here is how each one ends, how it shows on your credit reports, what the insurers require, and how to rebuild, with B and private lenders as a possible bridge.

The short version

How a bankruptcy or proposal ends

Both are legal processes under the federal Bankruptcy and Insolvency Act, handled through a Licensed Insolvency Trustee. For a mortgage, the date that matters is the day each one ends:

• A first bankruptcy. You are generally discharged automatically 9 months after you file if you have attended two counselling sessions, don't have to pay surplus income into the estate and no one opposes the discharge. If you do pay surplus income, it is 21 months.
• A second bankruptcy. The automatic discharge comes after 24 months, or 36 with surplus income. If a discharge isn't automatic, a court hearing decides whether it is granted, granted with conditions, suspended or refused.
• The certificate. After an automatic discharge, the trustee issues a certificate declaring you discharged and released from your debts, with some exceptions, such as support payments and court fines.
• A consumer proposal. Your creditors have 45 days to accept or reject your offer, the payments can't run longer than 5 years, and you attend two counselling sessions. When you have made every payment and done the counselling, the administrator issues a certificate that the proposal was fully performed.
• Falling behind. If you pay monthly and fall three payments behind, the proposal is generally deemed annulled.

Until you are discharged, getting credit of $1,000 or more without telling the lender you are an undischarged bankrupt is an offence, so for most people the mortgage plan starts after discharge.

How it shows on your credit reports

• A first bankruptcy. Equifax keeps it for 6 years after the discharge date, or 7 years after filing if there is no discharge date. TransUnion keeps it for 6 years after discharge in BC (7 in Ontario, Quebec, Prince Edward Island and Newfoundland and Labrador).
• A second bankruptcy. Both bureaus keep each one for 14 years after its discharge, and Equifax says the first one reappears when a second is filed.
• The debts you included. TransUnion says that when it removes a bankruptcy, the accounts reported as included in it come off too.
• A consumer proposal. Equifax removes it 3 years after you finish paying, or 6 years after it was filed, whichever comes first. TransUnion uses 3 years after you complete it or 6 years after you defaulted on the account, whichever comes first.

The Office of the Superintendent of Bankruptcy also keeps public records of bankruptcies and proposals that anyone can request. I explain scores, and how to dispute errors, in Your Credit Score and Your Mortgage.

What the mortgage insurers require

With less than 20% down, you will typically need mortgage loan insurance, and the Financial Consumer Agency of Canada notes that a lender may require it even with 20% down if you have a poor credit history. Each insurer publishes its own rules:

• Sagen. You must have been discharged from bankruptcy, or have fulfilled the terms of your proposal, for at least 2 years, with at least 2 years of re-established credit. Past judgments, garnishments and liens must be paid in full before closing, and anyone who has had a loss on debts secured by real estate is ineligible.
• Canada Guaranty. You may be considered 2 years after a bankruptcy discharge or a completed proposal, with 2 years of re-established credit: at least two accounts with activity over the past 24 months and no late payments. Judgments, tax liens and collections must be paid before closing. Anyone who has declared bankruptcy more than once, or been through a foreclosure or power of sale, is ineligible.
• CMHC. Its homeowner program page requires at least one borrower or guarantor with a credit score of 600 or more and doesn't spell out a waiting period after bankruptcy, so ask your lender how CMHC will look at your history.

An example: with a first bankruptcy and no surplus income, you are generally discharged 9 months after you file. Sagen's and Canada Guaranty's 2 years start then, so the earliest you could meet them is about 2 years and 9 months after filing, if you rebuild your credit throughout. The bankruptcy itself stays on your reports until about 6 years and 9 months after filing. A proposal that runs the full 5 years starts their 2 years only when it ends, about 7 years after it began.

Rebuilding your credit

Sagen and Canada Guaranty want 2 years of rebuilt credit, so start as soon as your discharge or proposal ends:

• Check both reports. Debts you included should show as included, not as balances you still owe. Dispute anything wrong with the bureau that reports it.
• Open credit you can manage. FCAC suggests a secured credit card, backed by a deposit you give the issuer, may suit you if you have filed for bankruptcy or want to rebuild after credit problems.
• Aim for two active accounts. Canada Guaranty looks for at least two with activity over 24 months, so a card and one other account you pay on time, every month, work toward that.
• Clear what's left. Pay any judgment, lien or collection that wasn't part of your bankruptcy or proposal: both insurers want judgments and liens paid before closing, and Canada Guaranty collections too.
• Keep balances low and apply only for credit you need.

B lenders and private lenders as a bridge

The two-year waits are the insurers' rules. If you can put 20% or more down and the mortgage doesn't need insurance, the decision rests with the lender. Without insurance, banks and federally regulated trust companies can't lend more than 80% of a home's value, so a B lender generally needs at least 20% down:

• B lenders. Regulated lenders, such as some trust companies, that lend to borrowers who don't fit a bank's standard rules.
• Private lenders. CMHC describes alternative lenders, such as mortgage investment corporations and other private lenders, as typically providing short-term loans at higher interest rates to borrowers who don't qualify with traditional lenders.
• An exit plan. Use the term to keep rebuilding, then move to a mainstream lender once you meet its rules. I cover the costs, the risks and how to plan your exit in B Lenders and Private Mortgages in BC.

Your down payment and documents

• Savings. Canada Guaranty expects lenders to verify 3 months of history on the account your down payment comes from.
• A gift. All three insurers accept a non-repayable gift from a family member, and Sagen and Canada Guaranty require a gift letter. I cover the details in Gifted Down Payments in Canada.
• Borrowed money. CMHC accepts a borrowed down payment on a 1- or 2-unit home with less than 10% down only from borrowers with a strong credit management history, which is hard to show soon after a bankruptcy.
• Proof it is over. Your certificate of discharge, or the court's order, or the certificate that your proposal was fully performed.
• A short explanation. Canada Guaranty tells lenders to get an explanation for any bankruptcy, so write down what happened and what has changed since.
• Proof of the rest. Receipts for any judgments or collections you paid, and your usual income documents.

Questions buyers often ask me

How soon after bankruptcy can I get a mortgage?

With less than 20% down, Sagen and Canada Guaranty look for 2 years since your discharge plus 2 years of rebuilt credit. With 20% or more down and no insurance, the lender decides, and a B lender may be an option.

Is a consumer proposal treated differently from a bankruptcy?

Sagen's and Canada Guaranty's wait is the same 2 years, but it starts when you finish the proposal, which can take up to 5 years. A proposal also leaves your credit reports sooner: up to 3 years after you finish it, compared with 6 years after discharge for a first bankruptcy in BC.

How long does a bankruptcy stay on my credit report in BC?

Six years after your discharge at both Equifax and TransUnion. If you have been bankrupt more than once, each bankruptcy stays for 14 years after its discharge.

Do I have to tell a lender about a past bankruptcy?

Be upfront. Before your discharge, the law requires it for credit of $1,000 or more. After it, the bankruptcy stays on your reports for years, the Office of the Superintendent of Bankruptcy keeps public records, and Canada Guaranty tells lenders to get an explanation.

Can I get a mortgage after a second bankruptcy?

It is much harder. Canada Guaranty won't insure anyone who has declared bankruptcy more than once, and each bankruptcy stays on your reports for 14 years after its discharge, so ask a mortgage professional about your options.

Planning your next step? Read Your Credit Score and Your Mortgage, see how much house you can afford, or try my mortgage calculator.

This article is general information, not financial or legal advice, and your lender and insurer make the final decision. The details come from the Bankruptcy and Insolvency Act, the Office of the Superintendent of Bankruptcy, Equifax, TransUnion, the Financial Consumer Agency of Canada and the mortgage insurers' published guidelines, and were current at the time of writing; a Licensed Insolvency Trustee can explain your own file. For the federal guide, see compare debt solutions.