In most cases, you can keep your house during a consumer proposal. A consumer proposal deals with your unsecured debt, not your mortgage, so as long as you keep making your regular mortgage payments, your home is not at risk. Your home equity does affect your proposal terms and conditions, since creditors expect an offer that reflects what they might receive otherwise. This guide explains how it works for Ontario homeowners, how equity shapes your offer, and the steps to protect your home from start to finish.
A consumer proposal is a legally binding debt settlement available under the Bankruptcy and Insolvency Act. It lets you settle your unsecured debt for less than the full amount, usually over a term of up to 60 months, without selling your assets.
You file the proposal through a Licensed Insolvency Trustee, the only professional in Canada authorized to administer one. The trustee reviews your finances, helps structure an offer, and presents it to your creditors for a vote.
It is different from debt consolidation, where you take out a new loan to pay off existing debts. With a proposal, you are not borrowing more money. It is also different from bankruptcy, which can require you to surrender certain assets. A consumer proposal is often the better fit for homeowners who want to keep their house during a consumer proposal while still resolving what they owe.
Once filed, a stay of proceedings stops most collection activity. Your creditors cannot continue wage garnishments, lawsuits, or harassing calls while the proposal is in place.
Can You Keep Your House During a Consumer Proposal?
Yes. For most Ontario homeowners, the answer is a clear yes. A consumer proposal does not force the sale of your home. You are not handing over your property to a trustee, and your creditors do not get to seize it.
This is one of the biggest reasons homeowners choose a proposal over bankruptcy. The goal is to keep your house during a consumer proposal while reducing the unsecured debt that is weighing you down.
Why Your Mortgage Is Treated Differently
Your debts fall into two categories. Secured creditors, like your mortgage lender, have a claim against a specific asset. Unsecured creditors, like credit card companies, payday lenders, and most lines of credit, do not.
A consumer proposal only deals with unsecured debt. Your home secures your mortgage, so it sits outside the proposal entirely. That separation is exactly why you can keep your house during a consumer proposal as long as the mortgage stays current.
The Role of Home Equity in Your Proposal
Home equity is the difference between your home’s fair market value and the balance owing on your mortgage. The more equity you have, the more it factors into your proposal terms and conditions.
Creditors look at what they would receive if you filed bankruptcy instead. Since equity above certain exemptions could be realized in a bankruptcy, your proposal offer usually needs to match or beat that figure to win the creditor vote.
How Home Equity Affects Your Proposal Terms and Conditions
Your trustee calculates your equity using a current home appraisal or a reasonable estimate of fair market value, minus your outstanding mortgage and any other secured debt registered against the property.
Here is the key takeaway: more equity generally means a higher proposal offer. Creditors want to see that accepting your proposal leaves them no worse off than a bankruptcy would.
This does not mean you lose your equity. It means the amount you offer to repay over the life of the proposal is shaped partly by that equity figure. You keep the home, and you settle the unsecured debt through affordable monthly payments or a lump sum proposal.
Example: Equity and the Proposal Offer
| Factor | Homeowner A | Homeowner B |
|---|---|---|
| Home fair market value | $600,000 | $600,000 |
| Mortgage balance | $560,000 | $400,000 |
| Home equity | $40,000 | $200,000 |
| Unsecured debt | $50,000 | $50,000 |
| Likely proposal offer | Lower, closer to a percentage of unsecured debt | Higher, since equity raises the bankruptcy comparison |
Important to note: these numbers are illustrative. Your trustee builds the actual offer around your full financial picture, including income, expenses, and the realizable value of your assets.
Keeping Up With Mortgage Payments Matters
A consumer proposal protects you from unsecured creditors, but it does not pause your mortgage. Your lender is a secured creditor, and your obligation to make mortgage payments continues throughout the proposal.
Common mistake: assuming the proposal covers everything. It does not. If you stop making mortgage payments, your lender can still pursue the power of sale or foreclosure, regardless of your proposal status.
If you are dealing with reduced income, talk to your trustee early. A proposal is built around what you can realistically afford, and your monthly payment can be structured to leave room for your mortgage and living costs.
The priority order is simple. Keep the mortgage current, keep the home, and let the proposal handle the unsecured side. That sequence is what allows you to keep your house during a consumer proposal without slipping into default.
Common Scenarios for Homeowners
Bad Credit and Still Wanting to Keep the Home
Many people exploring a proposal already have bad credit from missed payments and high balances. A consumer proposal will affect your credit rating, but it is often a more controlled outcome than continued defaults or bankruptcy.
You can still keep your house during a consumer proposal even with bad credit, because the home stays outside the proposal. Once the proposal is complete, many homeowners begin rebuilding credit and, in time, may qualify to refinance.
Reduced Income During the Proposal
Life changes. If your income drops partway through, you are not automatically in default. You can ask your trustee to bring an amendment to your creditors, adjusting the proposal terms and conditions to reflect your new reality.
Common myth: a reduced income means you lose the house. In practice, the proposal is meant to be flexible, and amendments exist for exactly this situation.
Using a Lump Sum Proposal to Settle Faster
If you have access to funds from family, savings, or a home equity solution, a lump sum proposal can settle your unsecured debt in one payment rather than spreading it over years.
This can be attractive to creditors and may help your offer get accepted faster. Some Ontario homeowners use refinancing or a second mortgage to fund a lump sum, then keep the home and close out the proposal sooner.
Consumer Proposal vs Other Options for Homeowners
| Feature | Consumer Proposal | Debt Consolidation | Bankruptcy |
|---|---|---|---|
| Keep your home | Yes, if mortgage stays current | Yes | Possibly, equity may be at risk |
| New borrowing required | No | Yes | No |
| Reduces total debt owed | Yes | No, you repay full amount | Yes |
| Protection from creditors | Yes, stay of proceedings | No | Yes |
| Administered by | Licensed Insolvency Trustee | Lender or credit counsellor | Licensed Insolvency Trustee |
| Impact on credit | Significant but defined | Lower if managed well | Most severe |
Key takeaway: debt consolidation can work if you qualify and have manageable debt, but a consumer proposal reduces what you owe while still letting you keep your house during a consumer proposal.
Steps to Protect Your Home During a Consumer Proposal
Use this checklist to stay on track:
- Confirm your mortgage is current and budget to keep those payments first.
- Get a realistic sense of your home equity through an appraisal or market estimate.
- Meet with a Licensed Insolvency Trustee to review your full financial picture.
- Be honest about income, including any reduced income, so your offer is realistic.
- Understand your proposal terms and conditions before you sign.
- Avoid taking on new unsecured debt during the proposal.
- If circumstances change, contact your trustee promptly about an amendment.
- Make every scheduled proposal payment on time to avoid default.
Following these steps gives you the best chance to keep your house during a consumer proposal from filing through to your Certificate of Full Performance.
Frequently Asked Questions
Q: Can you really keep your house during a consumer proposal in Ontario?
A: In most cases, yes. A consumer proposal deals only with unsecured debt, so your home is not surrendered or sold as part of the process. As long as you keep your mortgage payments current, you can keep your house during a consumer proposal.
Q: Does my home equity get taken in a consumer proposal?
A: No, your equity is not taken. However, the amount of equity you have influences your proposal offer, because creditors compare your proposal to what they might receive in a bankruptcy. More equity usually means a higher offer, not a forced sale.
Q: What happens if I miss a mortgage payment during my proposal?
A: Your mortgage sits outside the proposal, so missing payments can lead your lender to pursue power of sale or foreclosure. The consumer proposal does not protect you from your secured mortgage lender, only from unsecured creditors.
Q: Can I file a consumer proposal with bad credit and still keep my home?
A: Yes. Bad credit does not stop you from filing or from keeping your home. The proposal addresses your unsecured debt, and the home remains yours as long as the mortgage stays current.
Q: What if my income drops during the proposal?
A: If you face reduced income, your trustee can propose an amendment to your creditors to adjust the proposal terms and conditions. This flexibility helps you avoid default and continue to keep your house during a consumer proposal.
Conclusion and Next Steps
For most Ontario homeowners, a consumer proposal is a practical way to resolve unsecured debt while staying in their home. The mortgage stays separate, your equity is protected, and the path forward is built around what you can actually afford.
If your goal is to keep your house during a consumer proposal, the first move is a conversation with a Licensed Insolvency Trustee and a clear look at your home equity and budget. With the right plan, you can settle your debt and keep the roof over your head.
Thinking of a lump sum consumer proposal? Contact the team at LendToday.ca to answer any questions you might have that relate to home equity.
