Getting credit while in a consumer proposal is legal but genuinely difficult. Nothing in the Bankruptcy and Insolvency Act forbids you from applying, and no rule caps what you can borrow. The obstacle is your credit file: every debt inside the proposal carries an R7 rating, and most mainstream lenders treat that code as a reason to decline unsecured products like standard credit cards or personal lines of credit. A secured credit card backed by a cash deposit is the realistic option for most people, and used carefully it becomes the first building block of your credit recovery.
Why the R7 Rating Closes Most Doors
When your proposal is filed, every included debt gets flagged R7 at Equifax and TransUnion. The “R” refers to revolving or regular credit, and “7” tells any lender pulling your report that you are repaying through a debt settlement arrangement rather than under the original contract. That code sits on your file for the entire life of the proposal.
It does not vanish the moment you finish, either. Both bureaus remove the proposal three years after you pay off the included debts, or six years after you sign the proposal, whichever comes first.1Government of Canada. How Long Information Stays on Your Credit Report Finish a five-year proposal on schedule and the notation drops off roughly a year later. Pay it off in two years and you still wait three more years from that final payment.
Any lender who checks your report sees the R7. Most mainstream banks treat it as a dealbreaker for unsecured lending. That single code is why new credit is hard to get during a proposal, and it is why the answer is almost always going to involve a product that offsets the lender’s risk in some other way.
Do You Have to Disclose the Proposal When You Apply?
A common misconception is that the Act requires proposal participants to disclose their status when applying for credit above $1,000. That rule applies to undischarged bankrupts, not to people in a consumer proposal. Section 199 makes it an offence for an undischarged bankrupt to obtain $1,000 or more of credit without informing the lender, punishable by a fine of up to $5,000, imprisonment of up to one year, or both.2Justice Laws Website. Bankruptcy and Insolvency Act RSC 1985 c B-3 – Section 199 A consumer proposal is a separate process, so Section 199 does not apply to you.
You are still not free to be dishonest. Virtually every credit application asks whether you have been involved in insolvency proceedings. Answering falsely is misrepresentation, and it can let the lender void the account or pursue civil remedies. And the point is largely moot: the R7 is already on your file, so any lender who actually pulls your credit will see the proposal anyway. Disclose on every application. Lenders willing to work with proposal participants have already priced the risk in.
Secured Credit Cards
Because the R7 shuts you out of standard unsecured credit, secured cards are where most people in a proposal end up. These cards require a cash deposit that becomes your credit limit. Deposit $500 and your limit is $500. The deposit protects the lender, which is why approval is possible with an active proposal on your file.
Typical starting deposits in Canada run from $300 to $500, though some issuers accept more. Interest rates tend to be high, often 19.99% or above. That rate matters less than it looks, because the point of the card is not to carry a balance. Make small purchases, pay the statement in full each month, and let the on-time payment data flow to the bureaus. That data is the whole reason to have the card.
Some secured cards graduate to unsecured status after six to eighteen months of consistent on-time payments, at which point the issuer returns your deposit and you keep the card as a regular account. Not every issuer offers graduation, so ask before you apply if that matters to you.
Credit-Builder Loans
Some credit unions and smaller institutions offer credit-builder loans aimed at people rebuilding credit. The mechanics run in reverse: the lender parks the borrowed amount in a locked savings account, you make fixed monthly payments, and the funds are released to you once the loan is fully repaid. Your payments are reported to the bureaus throughout, so you build positive history without ever managing a card balance.
These products remove the overspending risk since the money is unreachable until the end. They pair well with a secured card because they add a second type of credit activity to your file. Availability varies, and not every institution will approve applicants with an active proposal, so expect to shop around.
What Your Trustee Expects
Your Licensed Insolvency Trustee administers the proposal from start to finish. Nothing in the Act explicitly requires you to ask permission before applying for a secured credit card. But the trustee has a real interest in whether new obligations will interfere with your proposal payments. A small secured card used for daily transactions and cleared each month is unlikely to raise a concern. A car loan or a stack of new accounts is a different conversation, because anything that puts proposal payments at risk puts the whole arrangement at risk.
You are also required to attend two mandatory financial counselling sessions and to disclose your financial information fully. If your circumstances change, the trustee is meant to know.
The Real Risk of Taking On New Debt
Missing proposal payments carries steep consequences. If your default equals three or more monthly payments, the proposal is automatically deemed annulled, with no court hearing needed.3Justice Laws Website. Bankruptcy and Insolvency Act RSC 1985 c B-3 – Section 66.31 For proposals with less frequent payment schedules, annulment triggers three months after any missed payment.
Annulment lifts the stay of proceedings. Creditors regain the right to pursue the full original debt minus whatever dividends they already received.4Justice Laws Website. Bankruptcy and Insolvency Act RSC 1985 c B-3 – Section 66.32 You also lose the right to file another proposal or claim protection from creditors until all claims filed and accepted under the original are paid in full. Annulment often leads straight to bankruptcy.
This is why the caution about new credit matters. New debt is not illegal. The danger is that the new payments squeeze your budget, you fall behind on the proposal, and every protection the proposal gave you collapses within three missed payments.
How to Use New Credit to Rebuild
You do not have to wait until the proposal is complete to start improving your credit profile. A few habits do most of the work:
- Use a secured card for small purchases you would make anyway, and pay the statement balance in full every month. The record of on-time payments is the point, not the credit limit.
- Keep utilization low. Try to stay below 30% of your limit at any given time. On a $500 card, that means keeping the running balance under $150.
- Pay everything on time, not just the card. Proposal payments, phone, utilities. A single missed payment can set back your recovery.
- Avoid unnecessary applications. Each one triggers a hard inquiry that can nudge your score down. Apply only for products you genuinely need and have a reasonable chance of getting.
Once you receive your Certificate of Full Performance from your trustee, the countdown to R7 removal begins, and the positive history you have built during the proposal keeps working for you the whole way through.1Government of Canada. How Long Information Stays on Your Credit Report People who come out of a consumer proposal with the strongest credit profiles are almost always the ones who started a secured card early and used it consistently, rather than waiting until the proposal was over to think about rebuilding.