Let's revisit Credit Bureaus and it's impact!

_{The following excerpt is borrowed from the following article:} 

_{http://www.mortgagebrokernews.ca/news/newsletter/171172/} 

A September 2012 Harris/Decima survey asked Canadians how confident they were about being able to raise $2,000 within a month if an unexpected need arose. Some 92 per cent said they’d have to consider borrowing to come up with some of the cash, and only 45 per cent said they’d never faced a debt problem. The poll results come as Canadian debt-to-income ratios sit at a record 152 per cent and officials issue warnings to start paying down debt before interest rates rise. But those survey findings suggest consumers have been unmoved by warnings and that the resulting financial burden could sink some households.
This is the third part of a CMP series regarding debt solutions. Based upon discussions our team has had with mortgage professionals across Canada, there are many myths regarding how debt solutions affect Canadians’ finances and their credit profiles. We hope to clarify these myths so as a trusted adviser you are better prepared to assist your clients.



Debt Management Plans  

Impact on credit bureaus: Enrolled debts are reported by lenders to credit reporting agencies as R-7 or I-7.  As per their purge rules, Equifax will remove a debt in a DMP three years after completion and TransUnion will remove it two years after completion.

The truth on Debt Settlement  

Impact on credit bureaus: If successful, a debt is reported by lender as “settled” and rated as R-9 or I-9. As per Equifax’s and TransUnion’s purge rules, the debt will remain as a trade line for six years from the date that the final payment is reported as “received,” whether settled or not.

The truth on Consumer Proposals

Impact on credit bureaus: Debts included in a proposal are rated R-7 or I-7 and remain on credit reports for 3 years after completion per Equifax and TransUnion’s purge rules.  
The truth on Bankruptcy

Since September 2009, a first bankruptcy with surplus income as defined by the OSB guidelines is not discharged for 21 months.  Canadians filing bankruptcy can keep assets exempt from seizure as set by the resident province or territory. Since 2008, RRSP contributions more than 12 month prior to filing any insolvency are exempt from seizure.  Many are able to keep “non-exempt” assets by paying the trustee the asset value on a payment plan. A second-time bankruptcy will not be discharged for at least 36 months.
Impact on credit bureaus: Per Equifax and TransUnion’s purge rules, first-time bankruptcy remains on credit reports for six years from the date of discharge and a second bankruptcy remains for 14 years.

The truth on Statute of limitations:

Each province’s statute of limitation determines how long a lender has to take legal action to collect consumer debt.  For example, in Ontario and Alberta lenders cannot obtain judgment where nothing has been paid within 24 months prior. Other provinces vary from three to six years.  Note the debt remains on credit reports for six years from date of last payment or activity per Equifax and TransUnion collection purge rules.