Worried About Losing Your Home Because of Debt?
For many Ontario homeowners, the fear of losing their home is what finally pushes them to look for debt help. High interest rates, increasing living costs, credit card debt, tax debt, and missed payments can quickly create financial pressure that feels impossible to manage.
The good news is that filing a consumer proposal does not automatically mean losing your house.
In fact, in most cases, Ontario homeowners are able to keep their home while using a consumer proposal to reduce unsecured debt and create a more manageable monthly payment plan. The consumer proposal process was designed, in part, to allow people to keep their assets and settle their debts.
At David Sklar & Associates, our Licensed Insolvency Trustees work with homeowners every day to help them understand their legal options and develop realistic debt solutions based on their financial situation.
Can You Keep Your House in a Consumer Proposal?
Yes, most people in Ontario are able to keep their house when filing a consumer proposal. A consumer proposal only deals with unsecured debts such as credit cards, lines of credit, payday loans, income tax debt, and unsecured personal loans. Your mortgage is not included in a consumer proposal and must continue to be paid directly to your mortgage lender.
Whether you can keep your home in a consumer proposal depends on several factors, including:
- The amount of equity in your home
- Whether your mortgage payments are current
- Your income and overall affordability
- The total amount of your unsecured debt
- Your ability to maintain future mortgage payments
Every situation is different, which is why speaking with a Licensed Insolvency Trustee is important before making financial decisions involving your home.
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 Canadians to:
- Reduce unsecured debt
- Stop interest charges
- Stop collection calls
- Stop wage garnishments in many situations
- Make one affordable monthly payment
A consumer proposal is legally binding once accepted by creditors and approved by the court.
Unlike bankruptcy, a consumer proposal allows many people to keep their assets such as:
- Homes
- Vehicles
- Investments
- RRSPs (except for certain recent contributions)
Does a Consumer Proposal Affect Your Mortgage?
A consumer proposal does not eliminate or reduce your mortgage.
Mortgages are considered secured debts because the lender has security registered against the property.
This means:
- Your mortgage payments should continue and be paid directly to the mortgage lender outside the proposal if you wish to keep the home.
- You must continue making your regular mortgage payments.
- The mortgage lender keeps its rights against the property if payments are not maintained.
If mortgage payments are up to date and affordable, most homeowners continue living in and owning their home throughout the consumer proposal process.
Understanding Home Equity in a Consumer Proposal
What Is Home Equity?
Home equity is generally calculated as:
Market Value of Your Home − Secured Debt Registered Against the Property = Home Equity
Example
| Home Market Value | Mortgage Balance | Estimated Equity |
|---|---|---|
| $900,000 | $700,000 | $200,000 |
If there are additional secured loans such as:
- Second mortgages
- HELOCs (Home Equity Lines of Credit)
- Secured lines of credit
- Property tax arrears secured against the property
These amounts are also deducted when calculating equity.
Why Equity Matters
Under the Bankruptcy and Insolvency Act, creditors may expect a consumer proposal to offer a better recovery than they would receive in a bankruptcy.
If significant home equity exists, creditors may expect higher proposal payments because bankruptcy could involve realizing some of that equity for creditors.
This does not necessarily mean you must sell your home in a proposal. Instead, proposal payments may be structured to reflect some portion of the available equity while allowing you to keep the property.
Can Creditors Force You to Sell Your Home in a Consumer Proposal?
Unsecured creditors generally cannot force the sale of your home simply because you file a consumer proposal.
However, secured mortgage lenders maintain their rights and may force a sale if mortgage payments fall behind.
This is why maintaining affordable mortgage payments is critical.
A consumer proposal may help homeowners by reducing pressure from unsecured debt obligations, making it easier to:
- Catch up financially
- Stabilize cash flow
- Continue mortgage payments
- Avoid further financial deterioration
What Happens If You Are Behind on Mortgage Payments?
Being behind on mortgage payments does not automatically disqualify you from filing a consumer proposal.
However, the situation becomes more urgent with respect to the home.
Mortgage lenders in Ontario may begin legal proceedings to force the sale of a home if mortgage payments fall behind. This is known as power of sale. Mortgage lenders also have foreclosure options available in some situations.
A consumer proposal may help by reducing or eliminating payments toward unsecured debts, thereby freeing up income that may help stabilize mortgage payments.
The earlier you seek professional advice, the more options may be available.
Power of Sale in Ontario
Ontario primarily uses a legal process called power of sale rather than foreclosure.
Under power of sale:
- The lender may take steps to sell the property if mortgage defaults continue.
- Homeowners may receive notices providing time to correct the default.
- The lender may eventually list and sell the property if the mortgage arrears are not paid in full.
Many homeowners wait too long before seeking help because they assume losing the house is unavoidable.
In reality, early intervention often creates more flexibility and more potential solutions.
Consumer Proposal vs Bankruptcy for Homeowners
Many homeowners wonder whether bankruptcy or a consumer proposal is the better option.
The answer depends on:
- Income
- Home equity or negative equity
- Mortgage payment affordability
- Total debt
- Future financial stability
Consumer Proposal
- May allow homeowners to keep their homes and equity
- Provides fixed payment terms
- Can reduce unsecured debt payments
Bankruptcy
- May be appropriate in certain situations
- Homeowners with significant equity may face additional complications involving property value and equity realization
A Licensed Insolvency Trustee can review both options and explain how they may apply to your specific circumstances.
Common Mistakes Homeowners Make When Facing Debt Problems
Using Credit Cards to Pay the Mortgage
This often creates a larger long-term problem and may increase overall financial pressure.
Taking High-Interest Second Mortgages
Borrowing against home equity can sometimes provide temporary relief, but may worsen monthly cash flow problems and put the home at risk.
Ignoring Collection Activity
Collection calls, legal notices, and CRA enforcement actions rarely disappear on their own.
Early action is usually beneficial.
Waiting Too Long to Seek Advice
Many homeowners seek help only after:
- Severe mortgage arrears
- Lawsuits
- Wage garnishments
- Power of sale notices
Exploring options earlier may provide more flexibility.
Real-Life Example
A homeowner in Ontario has:
- $85,000 in unsecured debt
- A mortgage that is currently up to date
- Rising monthly payments on unsecured debt
- Increasing reliance on credit cards for daily expenses
After meeting with a Licensed Insolvency Trustee, they file a consumer proposal that:
- Stops collections
- Consolidates unsecured debt into one monthly payment
- Stops interest charges
- Reduces financial pressure
- Allows them to continue paying their mortgage and keep their home
While every case is different, situations like this are common among homeowners struggling with rising debt obligations.
When Should You Speak With a Licensed Insolvency Trustee?
You may want to speak with a Licensed Insolvency Trustee if:
- You are relying on credit to cover living expenses
- Mortgage payments are becoming difficult to manage
- Collection calls are increasing
- You are considering refinancing just to pay unsecured debt
- You are worried about losing your home
- Minimum payments are no longer reducing balances
A Licensed Insolvency Trustee is the only professional authorized by the federal government to administer consumer proposals and bankruptcies in Canada.
Frequently Asked Questions
May I Keep My House if I File a Consumer Proposal in Ontario?
Most homeowners are able to keep their house during a consumer proposal if mortgage payments remain affordable and current.
Does a Consumer Proposal Include Mortgage Debt?
No. Mortgages are secured debts and are generally excluded from a consumer proposal unless the property is being voluntarily surrendered to the mortgage lender.
Will a Consumer Proposal Stop Foreclosure or Power of Sale?
No. A consumer proposal does not legally stop foreclosure or power of sale. However, it may help reduce pressure from unsecured debt and create room in the budget to address mortgage arrears.
What Happens to Home Equity in a Consumer Proposal?
If you retain your home and maintain your mortgage payments, you also keep your equity. However, the amount of equity may affect the amount offered to creditors.
Can CRA Force the Sale of My Home?
CRA has significant collection powers in certain situations and may force the sale of a home through tax liens. Individuals facing tax debt should seek professional advice promptly.
Is a Consumer Proposal Better Than Refinancing?
This depends on your individual circumstances, including:
- Income
- Debt level
- Interest rates
- Home equity
- Long-term affordability
A Licensed Insolvency Trustee can explain the pros and cons of each option.
Final Thoughts
Financial problems involving your home can feel overwhelming, especially when debt continues to grow despite your best efforts.
Many Ontario homeowners are surprised to learn that a consumer proposal may provide a path toward financial stability without automatically losing their home.
Understanding your options early may help you:
- Reduce financial stress
- Protect important assets
- Stop escalating debt problems
- Create a manageable repayment plan
If you are struggling with debt and worried about your home, speaking with a Licensed Insolvency Trustee may help you better understand the options available to you.
To learn more, contact David Sklar & Associates to schedule a confidential consultation with a Licensed Insolvency Trustee.
