Can I Keep My House in a Consumer Proposal?

Being able to resolve your debts at an affordable cost while protecting your home is one of the great benefits of a consumer proposal.

Nobody should be punished for debt. Instead, government legislation allows you to take proactive steps to address your debt without having everything you’ve worked for taken away, including your home.

This guide shows you how to protect your house in a consumer proposal while explaining the home equity rules around the process.

Can I keep my house in a consumer proposal?

You can keep your home in a consumer proposal.

Your mortgage isn’t affected, but you must make monthly debt repayments, mortgage payments and property taxes on time to ensure your home remains protected.

If you have equity in your home, a Licensed Insolvency Trustee will determine the amount you need to offer your creditors to ensure your consumer proposal is accepted.

Overall, your consumer proposal offer must include an amount equal to the equity in your home. If your province or territory has bankruptcy exemptions for home equity, it can reduce the amount you need to pay.

Your consumer proposal offer has to be more than creditors would receive in personal bankruptcy.

A proposal is designed to be more lucrative, allowing the creditor to recoup more of their money. If this weren’t the case, there would be no need for a consumer proposal because creditors would fare better through bankruptcy.

On the flip side, you have longer to pay, and you can protect your home and all of your assets.

A consumer proposal and home equity

Home equity is the difference between the value of your home and the remaining balance on your mortgage.

Your equity increases as you pay off your mortgage or if the value of your home increases.

When you file a consumer proposal, your Licensed Insolvency Trustee must determine whether your house has any equity. In simple terms, they work out if there would be any money left if you sold the house after paying your mortgage and other expenses.

If you have equity in your home, your trustee will advise what you should offer your creditors in your consumer proposal to ensure it is accepted.

Your trustee will include the equity value in your consumer proposal, and the amount is paid over your consumer proposal term. Because you can spread the monthly payments over five years, it’s affordable to you while still acceptable to your creditors.

Arrange a free consultation with a Licensed Insolvency Trustee to determine your best option.

Will a consumer proposal affect my mortgage renewal?

You can get a mortgage renewal while in a consumer proposal.

If you make all your mortgage payments on time, you’ll find that your lender will renew your mortgage, but some lenders apply a higher interest rate.

It can be challenging to switch mortgage lenders during this time, and you’ll likely be unable to find a better interest rate.

Further down the line, when your proposal is complete, you should be able to benefit from better terms.

Can I sell my house during a consumer proposal?

While you can sell your home during a consumer proposal, check with your trustee that there are no conditions attached to your agreement.

Buying a house after a consumer proposal

Getting a mortgage after a consumer proposal can take time. Mortgage lenders will want to see a solid financial period of stability over two years after you have completed your consumer proposal.

Paying your bills on time is the best way to rebuild your credit rating and proves to lenders that you can responsibly borrow money. Crucially, payment history has the single most significant influence on your credit score, making up 35% of your total score.

While in a consumer proposal, you can consolidate your monthly unsecured debt payments into one payment, so this is an excellent time to start saving money. This will ensure you have a down payment to buy a home.

Follow these tips to qualify for a mortgage:

• Pay off your consumer proposal faster, and it will drop off your credit report earlier.
• Monitor your credit report to ensure it’s correct and rectify any mistakes.
• Use a secured credit card to help rebuild your credit.
• Don’t open too many accounts too quickly, as this can harm your credit score.
• Always pay your bills promptly to show lenders you can manage money well.
• Save money, so you have a larger down payment (20%). Doing so will allow you to benefit from better interest rates when seeking finance.
• Establish two reputable lines of credit (such as a credit card or loan) and keep your balances low.
• Consult a mortgage broker for advice.
• Consider using a private lender or alternative lender.

Wrapping up

A consumer proposal lets you keep your home as long as you keep paying your mortgage and property taxes. To ensure your offer is accepted, your trustee will consider your home equity when creating your consumer proposal.

Many homeowners file a consumer proposal because it protects their largest and most important asset. Arrange a free consultation with a Licensed Insolvency Trustee to get tailored advice to suit your situation.

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