If you must file a consumer proposal it means that you are insolvent. To be insolvent, you can either be an individual or company, who isn’t bankrupt. You can also owe property and/or debt in Canada of at least one thousand dollars to your creditor. And you cannot pay your debt when they become due.

You have an option if you aren’t going to file bankruptcy to file a Consumer Proposal in Ontario. Filing a Consumer Proposal can be used as a financial strategy to restructure your unsecured debt payments. While you protecting your assets like your home and cars since secured debts cannot be included in a consumer proposal. At the completion, you have less to pay and you are better able to provide for your family.

consumer proposal

A Licensed Insolvency Trustee Under the Bankruptcy and Insolvency Act (BIA) by the Superintendent of Bankruptcy will create a plan and present to your creditors for all your unsecured debts such as credit cards, income tax, unsecured lines of credit, payday loans, installment loans etc. You may be able to include a student loan in your proposal.

There are many reasons that people file a proposal. A recent survey shows that the top three causes for a consumer proposal in Canada are as follows:

Unemployment or income issues09%
Health issues01%
Relationship breakdown97%

If you have been hiding from or avoiding calls from your unsecured creditors, the calls will stop once they are notified that you have filed a consumer proposal.

A consumer proposal is reported on your credit bureau and falls off three years after the consumer proposal is paid. Once you have come to an agreement of how much you will pay (how many cents on the dollar), you have options on how to make the payments. Bear in mind however that the longer you take to pay out the proposal, the longer it will show on your credit bureau.

Whilst in a proposal, you have options on how to make payments to your creditors:

  • You could make a monthly payment not exceeding 5 years
  • You could sell your property or any other asset to make the payment
  • You could refinance your property and make a lump sum payment

The first option will have the Consumer Proposal on your credit bureau for 8 years.

The second and third option will have the proposal on your credit bureau for three years.

The key to rehabilitating your credit quickly is to pay them off the Consumer Proposal and purchase one but Ideally two secured credit cards. Why two secured credit cards? One card will help but the more cards you have and manage well will increase your credit score. Also, mortgage lenders are looking for two credit cards of a post-bankrupt/consumer proposal applicant when they apply for a mortgage after a proposal. Note that any late payments on those cards after the proposal could impair your chances of getting a mortgage with a bank as they view that as a default and lack of ability to manage payments when due.

A Licensed Insolvency Trustee will advise someone going through a Consumer Proposal to get a secured credit card because of the help that it will give good assistance to a credit. Of the hundreds that have been referred to our office, probably 10% ever follow that advice and it’s understandable because money at this stage is sometimes not available.

What is Important in Consumer Proposal Mortgage:

It is very important that you make your mortgage payments during your hardship period. Once your proposal is accepted and your debt has been restructured, you could approach a mortgage lender to refinance your mortgage. Otherwise, you can get a second mortgage to pay out the consumer proposal and reduce the amount of time that the proposal. Not getting some kind of refinance definitely defeats the purpose of the Consumer Proposal.

Unfortunately, if you are with an A lender, it would be unlikely that you would get a mortgage to refinance in under 5 years to 8 years. You might have to go get either a second mortgage or a private mortgage. This depends on how much your consumer proposal is and how badly your credit has deteriorated.

Getting a second mortgage once you have completed the consumer proposal will provide you with funds to pay out the proposal. This reduces from 8 years the proposal takes to fall off your credit bureau to three. If you took out a second mortgage, you will now be able to refinance at a lower rate.

Getting a new first mortgage would also achieve the same result. However,  that will mean you will have to redo the entire mortgage at a possible higher rate. Working with your mortgage broker to work the numbers should be just as important as getting the proposal.

Time to Refinance Your Mortgage:

It takes three years for the proposal to come off your credit bureau if you refinance your mortgage. So, it will take 5 years to go to an A lender if you refinance when you file your proposal. Otherwise, you can pay the proposal for 5 years. Then, wait three years for a lender to offer you a discounted mortgage.

While some lenders will offer a mortgage to pay out the consumer proposal, most will not. You will have to turn to an alternative mortgage lender. An alternative lender is a mortgage lender who lends to borrowers with impaired or bad credit.  Their rate is a little higher than the regular banks. But in the long run, you will be saving money.

Our team at Sunlite Mortgage have been working with borrowers who are either in a Consumer Proposal. We also have been working with borrowers who want to buy a property after a consumer proposal for years. We will be more than delighted to help you find a solution that is beneficial to you.

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