Consumer proposals have become the preferred method for dealing with debt in Canada, yet there are still a lot of misconceptions regarding them. One commonly held belief is that if you own a home, you can’t file a proposal. In fact, for most people who own a home, a proposal is the better solution for dealing with debt.
A key difference between consumer proposals and bankruptcy is how both proceedings deal with assets. In bankruptcy, all your assets “vest” with the licensed insolvency trustee, which means the ownership of the assets transfers from you to the trustee. They are then empowered to sell the assets to recover money to distribute to your creditors. In contrast to bankruptcy, your assets do not “vest” with the licensed insolvency trustee when you file a consumer proposal. However, the value of those assets are still important. In any proposal you file, you must offer more money to your creditors than they would receive if you filed bankruptcy. This means the value of your home will affect the amount you offer to your creditors.
Home value depends on the market value of the property. Market value is the estimated selling price of the home if it were put up for sale as it is today. Real estate agents can provide an estimated market value. Although, most will provide it for free, some real estate agents may charge a small fee for an estimated market value.
Selling a house costs money. Consequently, the costs of paying off the mortgage including penalties, real estate commissions, property taxes and legal costs, are subtracted from the estimated proceeds to come up with an estimated equity. If there are other owners of the home, their percentage interest in the property is also deducted. The final number is the estimated equity in the home. This is an important number as any proposal will have to offer more money to your creditors than the estimated equity in the home. In addition, there may be other factors that could affect the amount offered, such as other assets, investments, and your income. A licensed insolvency trustee can figure all this out at no charge.
For many people, there may be little to no equity in their home due to the size of the mortgage secured to the property. Proposals do not deal with debt secured to property such as homes and cars. If the total equity estimated is less than $10 000, the home is considered an exempt property and would be treated as no equity.
The value of your home is not really a significant factor in determining the cost of a proposal – the estimated equity is. You could own a million dollar home, but if it is fully mortgaged with no equity, it’s value has no impact on what you need to offer in a proposal to your unsecured creditors (credit cards, loans, line of credit and taxes). The truth is for most people, the amount of debt they have is far more relevant to how much they must offer than the value of their home. I have helped people making minimum payments on credit cards and lines of credit totaling thousands per month, reduce their payments to just a few hundred dollars a month. It can happen, and does everyday for people just like you.
You can own a valuable property and still file a consumer proposal. I have helped many people who have expensive (fully mortgaged) homes eliminate their unsecured debt with a consumer proposal. For many filing the proposal, it was the only way they could afford to keep their home.
If you are struggling with high credit card debt, and can’t see a time when you won’t be making monthly payments on loans and credit cards, or if you have tax debt and are worried about keeping your home, you owe it to yourself to get trusted advice. An initial consultation with a Licensed Insolvency Trustee is always free and without obligation.