There’s no official rule book that states what you can and cannot do after bankruptcy. But after a while, and after you’ve studied the subject as much as I have, you get a pretty good idea for most things regarding life after bankruptcy in Canada. I recently got this question from a reader in Ontario:
Hi there I have been struggling with what to do about an RRSP pre approved loan I have with my bank from before my Bankruptcy. It is for $10,000. I am unsure if this is helping or hurthing my score so afraid to close. Do you know if having that open RRSP loan is positive or negative for my score? Thank you!
I’m going to go with my gut instinct on this one. NO! That was the response that came into my head as soon as I read that question. On the surface, to someone who likes to think positively and hope for the best, this might have been a tough question. Normally I like to think of myself as a positive thinker, but knowing the subject of bankruptcy recovery as well as I do, along with a bit of common sense, it should be clear why this will not work.
Was it an unsolicited pre-approval, or did you apply for it?
If that’s a PRE-APPROVED loan, then remember, you were pre-approved for a loan. In most cases, that means based on a preliminary credit check pre-qualified you for that RRSP loan. Perhaps it was based on your internal credit with that bank, or a “soft inquiry” credit check, that banks and other lenders pay for when doing mass mailings. It usually does not offer a guarantee that you will be approved. Unless you filled out an application, in which case a “hard inquiry” would have been made, and would have reduced your credit score by a few points. But, it for that to happen, YOU needed to be the one who initiated the credit inquiry. If you received an unsolicited pre-approval, there should not have been a hard inquiry to lower your score. And if there was, you have every right to get that inquiry removed and see your FICO credit score go up a few points.
A pre-approval will eventually expire, and are dependent on your credit staying the same
Let’s say, for the benefit of the doubt, that you WERE definitely pre-approved for that $10,000 RRSP loan. A pre-approval does not last forever. I’ve heard of mortgage pre-approvals lasting from 30 to 120 days. So, it’s possible your RRSP loan pre-approval was also good for a similar amount of time, and it sounds like you did not act upon it. And those pre-approvals are usually dependent on your credit score staying the same. You can be sure that even if you had good credit at the time of the pre-approval, and then filed for bankruptcy, the pre-approval became null and void.
It doesn’t sound like you actually accepted the loan. If you didn’t sign for the loan, and take the money, there’s probably no loan. And even if there was, it probably would have come up during your bankruptcy. During that nine months you are an undischarged bankrupt, your Trustee in Bankruptcy will be checking into everything, and all of your creditors have the opportunity to respond to it.
Just in case this is a valid and current loan…
However, if you applied for the loan before going bankrupt, got accepted, signed for the loan, took the money, have been making payments on it, and all of this slipped through the cracks, you better talk to your Trustee in Bankruptcy. In the event you took this loan and weren’t entitled to it, this could still be included in the bankruptcy. And if it was meant to be, the Trustee will do it.
If you’re still not sure if this “open RRSP loan” is “hurting or helping” you, get a copy of your credit report from both Equifax Canada and TransUnion Canada – the two credit reporting agencies we use in Canada. It’s almost guaranteed that if you owe anything, it’s going to show up there. My guess is that if this was an unsolicited pre-approval that you did not act upon, it won’t even show up on your credit report.
Pre-approvals VS loans VS a line of credit
I think you might be confusing a loan pre-approval with a line of credit. With the limited information I have on your situation, I think you got an unsolicited pre-approval for that RRSP loan. If I’m right, then you did not fill out an application, which means there would be no credit inquiry showing up on your credit report, nor an outstanding amount for the unpaid balance of the loan.
Now, let’s say you had a line of credit for $10,000 instead. That means you have $10,000 at your disposal, to use as you like. You most likely would have needed to apply for this and pass a credit check. It would show up on your credit reports, like of like a credit card with a $10,000 credit limit. Let’s say you did not use any of that $10,000. You don’t owe anything, but because you have that $10,000 available to you, it will probably be taken into account for your debt ratio whenever you apply for other credit, so yes, that could hurt your chances of getting future credit, and possibly even lower your FICO credit score. Theoretically, you could take that $10,000 and spend it at the casino or spend it on a Caribbean vacation. Now THAT would hurt your credit score.
But, all of this may be a moot point, because when you filed for bankruptcy, and your Trustee did his or her job correctly, that loan (if there really was a loan) would probably have been closed, and any equity from the RRSPs taken from you and distributed amongst your creditors. Again, I think you might have confused the loan pre-approval with a line of credit. Both of which would have disappeared once you filed for bankruptcy.
If in doubt, check your credit report and ask your Trustee or bank
But, if you really want to be sure, check your credit reports – especially if you have not checked your credit reports since your bankruptcy was discharged. Check to make sure your discharge was reported. Typically you have to submit a copy of your Certificate of Discharge to Equifax and TransUnion for this to happen. The Trustee won’t do this. And check to see that all of your past debts that were included in your bankruptcy are correctly showing as such, and not as active, open accounts – including that RRSP loan you are concerned about. You need to know where you stand with that loan, and make sure your credit report is free of errors and unverifiable information. Then you need to work on rebuilding your credit with secured credit cards as soon as possible. There’s plenty of information on this blog about how to do that.
In the event you have an open account, like a line of credit or credit card, experts recommend keeping the older accounts open and closing newer accounts. At a certain point, you may have too much credit available to you and that can actually hurt your credit score as well as your chances of getting more credit. But if it’s an installment loan, like for a car or RRSP, it has a definite number of payments and is treated differently. But if this was the case, you would be responsible for making monthly payments, and you’d sure hear about it if you missed a few! Again, check your credit reports to see if that loan in question appears on your credit reports. Or, just call that bank and ask if that loan is open. But again, my guess is that it was an unsolicited pre-approval that has no impact on your credit. And since you received it prior to declaring bankruptcy, that offer is no good anymore, anyways!
I hope this helps! Whatever the case may be, you need to find out where you stand with this so you don’t keep stressing out. There’s nothing worse than not knowing something, especially when it applies to your credit score. The good thing is that it’s easy enough to find out the answer using the suggestions mentioned above. Good luck!