Can You Keep Your House in a Consumer Proposal?

TL;DR

Yes, you can keep your house when you file a consumer proposal in Canada. A consumer proposal does not require you to sell or surrender any assets — unlike bankruptcy, where non-exempt assets may be claimed by the trustee. However, the equity in your home will influence how much creditors expect you to repay. Your proposal must offer more than creditors would receive if you went bankrupt instead.

How Consumer Proposals Protect Your Home

One of the primary advantages of a consumer proposal over bankruptcy is asset protection. When you file a consumer proposal, you keep everything you own — your house, your car, your RRSPs, and all other assets. The proposal is a negotiated repayment agreement, not a liquidation process.

Your mortgage is a secured debt, meaning it is separate from the consumer proposal. You continue making mortgage payments as normal throughout the proposal period. The consumer proposal addresses only your unsecured debts (credit cards, lines of credit, personal loans, CRA debt, etc.).

This distinction is crucial for homeowners. In a bankruptcy, the trustee would look at the equity in your home (market value minus the mortgage balance), compare it to the provincial exemption limit, and potentially require you to buy back the equity or have the home sold. In a consumer proposal, none of that happens — you simply keep your home.

How Home Equity Affects Your Offer

While you get to keep your house, the equity in it does affect how much you will pay in a consumer proposal. This is because of the "bankruptcy comparison test."

Your Licensed Insolvency Trustee must calculate what creditors would receive if you filed for bankruptcy. If you have $60,000 in home equity and your province's exemption is $10,000 (as in Ontario, where the exemption for home equity is effectively zero for non-rural properties), creditors could expect to receive $60,000 from the sale of your home in a bankruptcy scenario.

Your consumer proposal must offer at least that amount — plus something extra to make it worth creditors' while to accept the proposal rather than pushing you into bankruptcy. So the more equity you have, the higher your proposal payments will typically be.

That said, the proposal is still usually preferable because:

• You avoid the forced sale of your home
• You avoid the disruption, moving costs, and emotional toll of selling
• You can spread the payments over up to five years rather than losing the equity all at once
• You maintain your housing stability

Use our consumer proposal calculator to see how your home equity might affect your payments.

Provincial Exemption Differences

The amount of home equity that would be claimed in bankruptcy varies by province, which indirectly affects your consumer proposal offer.

• Ontario: No specific home equity exemption (effectively $0)
• British Columbia: $12,000 for equity in the Capital Regional District or Greater Vancouver; $9,000 elsewhere
• Alberta: $40,000
• Saskatchewan: $32,000 (with additional protections for farmsteads)
• Manitoba: $1,500
• Quebec: Varies based on specific circumstances

In provinces with low or no exemptions (like Ontario), homeowners with equity have a strong incentive to choose a consumer proposal over bankruptcy. In Alberta, where the exemption is $40,000, the bankruptcy comparison baseline for home equity is lower.

What Happens to Your Mortgage During a Consumer Proposal

Your mortgage continues as normal during a consumer proposal. You make your regular payments to your mortgage lender, and the proposal has no direct effect on the mortgage terms.

However, there are some indirect effects to be aware of:

Credit report notation. Your credit report will show an R7 rating during the proposal. This can affect your ability to refinance or renew your mortgage with a different lender. Most homeowners stay with their current lender for renewals during the proposal period, as the existing relationship makes renewal more straightforward.

New borrowing. During a consumer proposal, you generally cannot take on new debt exceeding $1,000 without informing your LIT and, potentially, your creditors. This limits your ability to take out a home equity line of credit or second mortgage.

Interest rates on renewal. Some lenders may offer less competitive renewal rates to borrowers with an active consumer proposal. Shopping around with a mortgage broker who has experience with insolvency clients can help.

Consumer Proposal vs Bankruptcy for Homeowners

For homeowners with equity, the choice between a consumer proposal and bankruptcy almost always favours the proposal. Here is why:

| Factor | Consumer Proposal | Bankruptcy | |---|---|---| | Keep your home | Yes | Maybe (depends on equity and exemptions) | | Equity at risk | No | Yes (above provincial exemption) | | Mortgage continues | Yes, unchanged | Yes, but trustee may force sale | | Credit impact | R7 for 3 years after completion | R9 for 6-7 years after discharge | | Monthly payments | Fixed, interest-free | Surplus income + equity buyback |

The total cost of a consumer proposal for a homeowner may be higher than for someone without assets, but it is almost always less disruptive than losing your home in a bankruptcy.

FAQ

Can I sell my house during a consumer proposal? Yes. You can sell your home at any time during a consumer proposal. The proceeds from the sale belong to you (after paying off the mortgage), and you can use them as you wish — including paying off the remainder of the proposal early.

What if I fall behind on my mortgage during a consumer proposal? Your consumer proposal does not protect your mortgage. If you fall behind on mortgage payments, your lender can still enforce the mortgage and potentially start power of sale or foreclosure proceedings. A consumer proposal only provides protection from unsecured creditors.

Can I buy a new house during a consumer proposal? It is technically possible but practically difficult. The R7 credit notation makes it harder to qualify for a new mortgage. Some lenders specialize in working with proposal clients, but interest rates will be higher. Most advisors recommend waiting until the proposal is complete.

Sources

• Office of the Superintendent of Bankruptcy Canada (OSB)
• Canadian Association of Insolvency and Restructuring Professionals (CAIRP)
• Bankruptcy and Insolvency Act (BIA), R.S.C., 1985, c. B-3