- credit cards
- lines of credit
- payday loans
- unsecured personal loans
- income tax debt
By reducing unsecured debt obligations into one structured monthly payment, some homeowners are able to improve cash flow and continue maintaining mortgage payments.
A consumer proposal does not automatically require the sale of your home.
However, every situation is different and depends on factors such as:
- home equity
- mortgage affordability
- total debt
- income stability
- secured versus unsecured obligations
Why Homeowners Feel Forced to Sell
Financial stress often builds gradually.
Homeowners may start by:
- missing credit card payments
- relying on lines of credit
- using savings to cover bills
- increasing balances month after month
Over time, debt payments can consume a significant portion of household income.
Some homeowners begin considering selling their home because they:
- can no longer manage monthly payments
- fear legal action
- worry about mortgage arrears
- want to avoid insolvency proceedings
- feel emotionally overwhelmed
In reality, selling the home is not always the only option available.
How Unsecured Debt Impacts Homeowners
Many homeowners are “house rich but cash flow poor.”
Even with equity in the property, monthly debt obligations may become unmanageable because of:
- high interest credit card debt
- tax debt
- unsecured loans
- rising mortgage rates
- increased living expenses
This can create a cycle where homeowners continue borrowing simply to maintain minimum payments.
A consumer proposal may help interrupt that cycle.
What Is a Consumer Proposal?
A consumer proposal is a legal debt settlement process governed by the Bankruptcy and Insolvency Act and administered by a Licensed Insolvency Trustee.
It allows eligible individuals to:
- reduce unsecured debt
- stop interest charges
- consolidate payments
- stop collection activity
- create a fixed repayment plan
Consumer proposals are legally binding once accepted by creditors and approved by the court.
Unlike bankruptcy, many people filing a consumer proposal are able to retain assets such as:
- homes
- vehicles
- RRSPs, except for certain recent contributions
Does a Consumer Proposal Affect Your Mortgage?
A mortgage is considered a secured debt.
This means:
- mortgage payments continue separately from the proposal
- the lender maintains its security rights against the property
- homeowners must continue making regular mortgage payments
A consumer proposal does not eliminate mortgage debt.
However, by reducing payments toward unsecured debts, some homeowners find it easier to maintain mortgage obligations and avoid further financial deterioration.
Understanding Home Equity
Home equity is one of the most important considerations when homeowners explore debt relief options.
What Is Home Equity?
Home equity is generally :
- the value of the property
- minus the balances owing for secured debts
Secured debts may include:
- first mortgages
- second mortgages
- HELOCs
- secured lines of credit
- Property tax arrears
- Condo fee arrears
- Tax Liens
Example:
| Estimated Home Value | Total Secured Debt | Approximate Equity |
| $850,000 | $700,000 | $150,000 |
Why Equity Matters in a Consumer Proposal
Creditors generally compare a consumer proposal to what they may receive in a bankruptcy.
If substantial home equity exists, creditors may expect proposal payments that reflect some portion of that equity.
This does not necessarily mean the home must be sold.
Instead, the proposal may be structured to provide creditors with a reasonable settlement while allowing the homeowner to retain the property.
How a Consumer Proposal May Help Homeowners
A consumer proposal may help by:
- reducing overall monthly debt payments
- stopping interest on unsecured debt
- eliminating collection pressure
- preventing unsecured creditors from pursuing legal action
- improving monthly cash flow
- creating payment stability
For some homeowners, this creates enough financial relief to avoid selling the home.
Real Life Example
An Ontario homeowner has:
- $95,000 in unsecured debt
- increasing credit card balances
- mortgage payments that are becoming difficult to maintain
- pressure from collection agencies
The homeowner is considering selling the property simply to eliminate debt pressure.
After speaking with a Licensed Insolvency Trustee, they file a consumer proposal that:
- consolidates unsecured debt into one affordable payment
- stops interest charges
- reduces monthly financial pressure
- allows them to continue paying the mortgage
While every case is different, many homeowners are surprised to learn that alternatives may exist before selling their home.
Common Mistakes Homeowners Make
Using Home Equity to Continuously Borrow
Repeated refinancing or taking second mortgages may temporarily relieve pressure while increasing long term financial strain.
Waiting Until Mortgage Arrears Become Severe
The earlier homeowners seek advice, the more options may be available.
Ignoring Tax Debt
CRA has significant collection powers that can create additional financial pressure for homeowners as they can register tax debts against real property creating the equivalent to a mortgage.
Believing Bankruptcy Is the Only Option
Many people are unaware that consumer proposals exist as an alternative to bankruptcy.
Consumer Proposal vs Selling Your Home
Selling a home may make sense in some situations, especially if:
- housing costs are no longer affordable
- significant downsizing is planned
- mortgage payments cannot realistically be maintained
However, selling a home under financial pressure may also create:
- emotional stress
- rushed financial decisions
- moving costs
- family disruption
- difficulty re-entering the housing market later
A Licensed Insolvency Trustee can help review all available options before major decisions are made.
Consumer Proposal vs Bankruptcy for Homeowners
Homeowners often ask whether bankruptcy or a consumer proposal is the better option.
The answer depends on:
- income
- assets
- equity
- affordability
- overall debt structure
In many situations, homeowners prefer consumer proposals because:
- assets are generally retained
- payments are fixed
- home equity may be protected
- monthly budgeting may become more predictable
A Licensed Insolvency Trustee can explain how each option may apply to your specific financial circumstances.
Signs You Should Seek Professional Advice
You may want to speak with a Licensed Insolvency Trustee if:
- you are using credit to pay living expenses
- you are considering selling your home because of debt
- minimum payments are becoming unmanageable
- collection calls are increasing
- you are behind on taxes or unsecured debts
- refinancing is no longer solving the problem
- financial stress is affecting your health or family life
Frequently Asked Questions
Can I keep my home in a consumer proposal?
Many homeowners are able to keep their home during a consumer proposal if mortgage payments remain manageable and secured obligations continue to be paid.
Will creditors force me to sell my house?
Unsecured creditors generally cannot force the sale of your home simply because you file a consumer proposal.
Does a consumer proposal stop mortgage payments?
No. Mortgage payments continue separately and must remain current.
Can a consumer proposal help if I have tax debt?
Consumer proposals may include unsecured CRA income tax debt in many situations.
Is selling my home better than filing a consumer proposal?
This depends on your financial circumstances, affordability, and long term goals. A Licensed Insolvency Trustee can help review all available options.
Does home equity affect a consumer proposal?
Yes. Home equity is often considered when determining what creditors may expect in a proposal settlement.
How David Sklar & Associates Can Help
At David Sklar & Associates, our Licensed Insolvency Trustees work with homeowners across Ontario to help them better understand their debt relief options.
Every financial situation is unique. Our team takes the time to review:
- income
- mortgage obligations
- home equity
- unsecured debt
- overall affordability
We help individuals explore practical, legally regulated solutions in a supportive and judgment free environment.
Final Thoughts
Debt problems can make homeowners feel trapped and overwhelmed, especially when it seems like selling the family home is the only solution left.
In some situations, a consumer proposal may help reduce unsecured debt pressure and create a more manageable financial path forward while allowing homeowners to keep their property.
The earlier financial problems are addressed, the more options may be available.
If you are struggling with debt and worried about losing your home, speaking with a Licensed Insolvency Trustee may help you better understand the solutions available to you.
To learn more, visit David Sklar & Associates to schedule a confidential consultation.
