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| In many cases, you can keep your house or car in a consumer proposal, as long as you continue making required secured loan payments such as a mortgage or car loan. A consumer proposal deals mainly with unsecured debts and may be a way to avoid bankruptcy while protecting important assets. |
A consumer proposal is often chosen to protect assets
One reason many people consider a consumer proposal is that they want to deal with debt without losing important assets. This may include a home, vehicle, savings, investments, tools or family possessions.
A consumer proposal is not the same as bankruptcy. In a proposal, you make an offer to settle your debts with the unsecured creditors through a Licensed Insolvency Trustee. If the proposal is accepted and you complete the payments, you are legally released from the debts included in the proposal. Official information is available from the Office of the Superintendent of Bankruptcy on consumer proposals and the Consumed by debt information for consumers.
Secured debts are treated differently
A house or car is often connected to a secured debt. A mortgage is secured by the home. A car loan may be secured by the vehicle. A consumer proposal does not automatically erase secured loans.
If you want to keep the home or car, you usually need to continue making the mortgage or car loan payments. You also need to keep insurance, property taxes and other required costs current.
Home equity matters
If you own a home, the trustee will review the value of the property, the mortgage balance and any available equity. Equity is the difference between what the home is worth and what you owe against it.
Creditors may expect a proposal to offer more than they would receive if you filed bankruptcy. That means home equity can affect how much your proposal payment needs to be.
Car equity matters too
The same idea applies to a vehicle. The trustee will review the vehicle value, loan balance and equity. If the vehicle is leased or financed, the lender rights and payment status need to be reviewed.
In many cases, people keep their vehicle during a consumer proposal because the proposal deals with unsecured debts while they continue paying the secured car loan.
Why a proposal may be better than bankruptcy for assets
In bankruptcy, non-exempt assets may have to be dealt with for the benefit of creditors. In Ontario, exemption rules can protect certain essential assets, but limits and details matter. The current rules are set out in the Ontario Execution Act.
A consumer proposal may allow you to keep assets by offering creditors a monthly payment instead. This is why people with equity in a home or vehicle often ask about proposals before considering bankruptcy. Review the full range of debt relief options.
What if I am behind on the mortgage or car loan?
A consumer proposal can help with unsecured debts, but it may not fix missed secured loan payments on its own. If you are behind on a mortgage or car loan, you need advice quickly. The secured lender may still have rights if payments are not made.
A trustee can help you understand whether reducing unsecured debt payments could free enough cash flow to keep secured payments current.
The main takeaway
You may be able to keep your house or car in a consumer proposal, but the details depend on secured loan payments, equity and affordability. Before deciding, speak with a Licensed Insolvency Trustee and get a clear review of your assets.
Frequently asked questions
Does a consumer proposal include my mortgage?
Usually no. A mortgage is a secured debt. You generally keep paying it if you want to keep the home.
Can I keep a financed car in a consumer proposal?
Often yes, if you continue making the secured car payments and the lender terms allow it.
Does equity affect proposal payments?
Yes. Equity can affect what creditors may expect to receive through the proposal.
Speak with a Licensed Insolvency Trustee
Speak with David Sklar & Associates for a confidential review of your debt, income, assets and monthly budget. A Licensed Insolvency Trustee can explain your options and help you choose a realistic next step. Book a free consultation today.
