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Filing a consumer proposal or declaring bankruptcy allows a consumer to reduce those debts immediately and come up with some sort of payment plan.

“They owe $60,000 plus interest on unsecured lines of credit plus credit cards, etc. They do a consumer proposal for $21,000 without interest and the money they are saving would allow them to save more money to buy a house,” says Mr. Fisher.

There’s no question when it comes time to buy a house, your credit rating will be a key factor in whether a bank will loan you the money. A bankruptcy is not going to help with that. But lenders will also look at what your down payment is relative to the value of the house and what you are currently earning.

That person with loads of unsecured debt may have a better credit rating because they’ve managed to stay afloat but could be considered a bigger risk when it’s time to borrow for a house because their financial position is weaker.

Reestablishing that credit is a little trickier. One way to start is with a car loan. RRSPs loans also work well because banks are willing to lend the money out because they know where the investments are located.

Bankruptcies stay on record with the credit bureau for six years after they are discharged and Mr. Fisher says on average stay on your record for eight years, the extra two being the time to pay back the debt agreed to at proceedings.

“I’m not suggesting you go bankrupt to try and buy a house,” Mr. Fisher said, emphasizing consumers need to understand a bankruptcy won’t leave them shut out of home ownership forever.