Buying a vehicle after bankruptcy in Alberta: what to know before you shop

If you've been through a bankruptcy or a consumer proposal, you've probably wondered whether you can finance a vehicle again, and when. The honest answer: it depends on where you are in the process, what your credit report shows and the lender you deal with. Here's what you need to know before you start shopping.

Step 1: Know where you are in the process

Your options are different depending on whether you're still in a bankruptcy or proposal, or finished.

If you're in a bankruptcy and not yet discharged

• The Office of the Superintendent of Bankruptcy (OSB) says that if you're not discharged, you have to tell potential lenders about your undischarged status.
• Talk to your Licensed Insolvency Trustee (LIT) before you apply for a vehicle loan. New debt and new payments can affect your budget and your duties in the bankruptcy.
• The OSB gives these typical times to discharge (unless someone opposes it):
  • 9 months for a first bankruptcy with no surplus income payments
  • 21 months for a first bankruptcy with surplus income payments
  • 24 or 36 months for a second bankruptcy

If you're in a consumer proposal

• A proposal can run for up to 5 years. Missing payments can lead to it being annulled. According to the OSB, if you're making monthly payments, missing three is enough.
• Before you add a vehicle payment, make sure you can still make your proposal payments comfortably. Your LIT can help you work through that.

If you're discharged, or your proposal is complete

You're legally released from the debts covered (with some exceptions). Now your credit report and your track record since are what lenders look at most.

Step 2: Know how long it stays on your credit report

From the Financial Consumer Agency of Canada (FCAC):

What happened	How long it usually stays (Alberta)
First bankruptcy	Usually removed by both Equifax and TransUnion 6 years after discharge. TransUnion keeps it 7 years in NL, ON, PEI and QC, but not in Alberta.
More than one bankruptcy	14 years
Consumer proposal	3 years after you've paid off all the debts in the proposal, or 6 years after you signed it, whichever comes first
Debt management plan (through a credit counsellor)	2 years after you finish paying

Your file doesn't have to be clean before you can borrow, though. What you've done since matters too.

Step 3: Pull your own credit reports first

You can get your credit report free online from both of Canada's main credit bureaus, Equifax and TransUnion. Checking your own report doesn't affect your credit rating, according to the FCAC. Look for:

• debts that were part of your bankruptcy or proposal still showing as owing or overdue
• accounts you don't recognize
• the right discharge or completion date

If something's wrong, contact the credit bureau to dispute it. Be careful with companies offering "free" reports that ask for personal information. The FCAC warns that some are fraudsters.

Watch out: the OSB warns to beware of any promise to remove negative information from your credit record sooner than normal. By law, it can't be done.

Step 4: Understand what lenders look at

The OSB lists the main things behind your credit score:

• whether you make your payments on time
• how much of your available credit you use
• how long you've had credit
• the types of credit you have
• how many credit inquiries are on your file

Lenders may consider other things too, such as a long-standing relationship with your bank. The OSB also notes that some lenders will offer credit right after a discharge or completed proposal, but usually at a high interest rate that could make it hard to keep up. That's why comparing the total cost matters so much (see Step 6).

Step 5: Set your budget before you set foot on a lot

• Work out a payment you can make comfortably and keep up with insurance, fuel and maintenance. AMVIC suggests getting insurance quotes before you choose a vehicle.
• Decide in advance what you will and won't buy beyond the vehicle: extended warranties, protection packages, insurance products, etching. They're optional, and you can say no.
• If you're trading in a vehicle you still owe money on, find out whether you owe more than it's worth (negative equity). That amount can end up in your new loan.

Step 6: Questions to ask before you sign

1. "Can I see the full disclosure statement?" Lenders and dealers must give you one before you finalize the agreement. It shows the total cost of borrowing. Ask for a copy.
2. "What's the total cost over the whole term?" The FCAC says to look at the total cost, not just the payment or the rate. A longer term lowers the payment but usually means more interest overall.
3. "Can you show me offers from more than one lender?" A dealer doesn't have to offer you the lowest rate. You can also get a quote from your own bank or credit union.
4. "Is anything in this price optional?" In Alberta, an advertised vehicle price must include all fees except GST and financing costs. That's AMVIC's all-in pricing rule.
5. "Is this deposit refundable?" Get the answer in writing, along with every promise.

There's no cooling-off period on a vehicle purchase in Alberta. Once you sign, the dealer can enforce the contract, so take your time. The FCAC also warns: never sign contracts with two dealerships at the same time.

Step 7: Keep rebuilding

A vehicle loan you pay on time, every time, can become part of your rebuilt credit history. The OSB's advice for rebuilding is simple: pay on time, use less than 30% of your available credit, and keep good habits over time. Secured credit cards or cards with a small limit may be possible even during a bankruptcy or proposal.

Finally, check that the dealer is licensed. In Alberta, every business that sells vehicles to consumers must be licensed by AMVIC, and you can search for one on AMVIC's website.