Our team at Frederick & Company Ltd. is dedicated to helping people address their debt issues by employing programs based on their individual situations.

One question we hear a lot from our clients when implementing these programs is:

“Will I lose my home?”

Read on to learn more about how consumer proposals work and what will happen to your home if you decide to file one.

What is a Consumer Proposal and How Does It Work?

A consumer proposal is a debt relief process that allows you to consolidate your unsecured debts and pay back all or some of them through monthly payments over a maximum five-year period.

This process can only be arranged by a Licensed Insolvency Trustee (LIT) who will work with you to create an offer that is then taken to your creditors. This offer can either modify your payments or have you repay only a portion of what you owe.

The consumer proposal process begins with an initial assessment where your LIT will go over all your debt relief options to ensure that a consumer proposal is the best for you. They will then work with you to gather personal and financial information that will go into a document called a “statement of affairs” that will be sent to your creditors upon filing the proposal. This document will help your creditors understand your current assets, liabilities and financial transactions that have occurred in the past five years, which will inform their decision to vote on your proposal. If your proposal is accepted, you will begin making payments based on the agreed-upon amount and schedule. 

To create the offer, your LIT will work with you to determine how much you can afford to pay based on your income and assets and how much your creditors are willing to accept. During a consumer proposal, your monthly payments are made to your LIT over an agreed-upon period of time. You can make the monthly payments or a lump-sum payment – or a combination of both.

A consumer proposal will help you deal with your unsecured debts such as personal loans, payday loans, income taxes, credit cards, and lines of credit, but if you have secured debts that you are unable to continue paying, a consumer proposal can help you with that as well. 

Will I Lose My Home if I File for a Consumer Proposal?

No, you will not lose your home if you file for a consumer proposal. 

In a consumer proposal (as opposed to a bankruptcy), your assets do not vest with the Trustee. As long as you keep up with your mortgage payments, keeping the home is completely up to you. That being said, your Trustee will help you create a budget to see if keeping secured assets are within your means.

One important thing to note about proposals is that they must offer a better advantage to your creditors compared to a bankruptcy – you can offer to pay them more and/or pay them more quickly. The amount of non-exempt equity you have in your home will be taken into consideration when calculating your proposal payment. In Canada, there are exemptions in your property that cannot come into the pot for your creditors in a bankruptcy. This includes $40,000.00 of equity in your principal residence (the primary location that you inhabit). If you have equity in excess of this exemption, then you can choose to pay out that amount through the bankruptcy and keep the home.

In Canada, you can keep your home when filing a consumer proposal as long as you can continue to make your monthly mortgage payments. A mortgage is a secured debt and it is treated differently than unsecured debts.

For this reason, mortgage lenders cannot change your mortgage terms or foreclose on your home because you have filed a consumer proposal – unless you fall behind on your mortgage payments.

Will a Consumer Proposal Affect My Mortgage Renewal?

As long as you keep up with your mortgage payments by paying them in full and on time, you will likely be able to renew your mortgage with your existing lender after filing a consumer proposal. Your existing lender is likely to forego a new credit application because you are a current customer. However, before filing a proposal, we will always advise meeting with your lender to discuss whether a consumer proposal will affect your renewal. 

However, if you decide to switch your mortgage to a new lender, you will need to file a new credit application which will reflect the impact the consumer proposal has on your credit score.

If you are considering a mortgage renewal after filing a consumer proposal, it is probably best to wait until your credit score starts to improve so you don’t face higher interest rates.

Can I Still Buy a Home if I File for a Consumer Proposal?

A consumer proposal doesn’t prevent you from buying a house but the proposal will remain on your credit report for 3 years after you make your final payment. However, you can still build up your credit (even during a consumer proposal) to increase your chances of being approved for a mortgage.

If you are looking to sell your current home and downsize in order to save money and address your debts, this is possible as well. As long as you have a significant downpayment on a new home and a solid income, you can purchase a new home after filing a consumer proposal.

Get the Help You Need from a Licensed Insolvency Trustee

There are many companies out there that will tell you they can help you with filing a consumer proposal but many are not approved by the Canadian Government.

Frederick & Company Ltd. is an approved LIT firm that can administer a consumer proposal that is fair and legal, helping you tackle your debts and protect your assets.

If you are ready to find a solution that will move you from financial distress to financial stress, get in touch with us today!