Consumer Proposals are an attractive option for dealing with debts to home owners as unlike a bankruptcy, you get to keep control of your house if you’ve built up some equity. In a Consumer Proposal you don’t “assign” control of your assets to the trustee like you would in an assignment in bankruptcy.
Protecting an investment such as a home is important to most people so it is understandable that this question would be asked if you’re looking at options to deal with debts as a home owner.
A Consumer Proposal helps you deal with unsecured debts, so unless you’re intentionally planning on surrendering the house back to the mortgage holder before you file the proposal to your creditors, the rights of the mortgage company are not affected by you filing a Consumer Proposal. The golden rule is “If you want to keep the house, you simply just keep paying for it”.
Therefore, the mortgage would not normally be included in the proposal.
A mortgage company will allow you to keep the property if you make sure at the time you file the proposal you’re up to date with the mortgage and you then stay up to date. You’ll also want to make sure you’re up to date with property taxes too as they are not included in the proposal either.
It can be argued that filing either a bankruptcy or consumer proposal on unsecured debts is actually a good thing for a mortgage company… If you’re no longer juggling around an overwhelming debt load, because you’ve filed a bankruptcy or proposal, you’re actually giving yourself a better chance of maintaining your mortgage payments on time each month.
What if my mortgage is with the same lender that I have debt with that will be in my proposal?
The part of the lenders company that deals with the mortgage is usually a separate division to the part that deals with unsecured debt. The mortgage typically brings them a lot more profit over the life of the mortgage than the profit made over the life of a credit card as you normally pay a lot more interest on a mortgage than you would on a credit card.
Primarily the mortgage company wants you to pay back the money it loaned to you (I know that sounds obvious, but it’s true all the same). If they lose money on another debt you have with them, they would be hurting themselves further if they did not allow you the opportunity to continue paying the mortgage back.
There’s a rule in the consumer proposal legislation that essentially prevents a secured creditor from amending or cancelling an agreement you had in place prior to the proposal, just because you filed a proposal. The same rule also states they don’t have to lend you any further further credit, but they can’t cancel what’s there just because of the proposal. What this means is that at renewal time, don’t expect to be approved if you’re asking to borrow further funds on top of what you already owe.
What happens when my mortgage is up for renewal?
Historically, most mortgage lenders will just offer an automatic renewal provided that you’re up to date at the time of renewal. The fact you may have filed a consumer proposal does not change this. Again, they’ve already lent you the money, so it makes sense for them to want you to pay it back (with interest) as opposed to putting you in a situation where they force you to sell (they’d not continue to make money off you from the mortgage interest if they called in the mortgage).
The only time, I’ve heard of anyone having a problem at renewal time, is either; a) you’re behind on the mortgage (in which case you’ll have a problem renewing regardless of the fact you filed a proposal) or, b) the mortgage lender has decided they no longer want to operate as a mortgage lender (which is extremely rare…).
If you’re a home owner and are wondering what to do with your debts, then feel free to contact a consumer proposal administrator if you’d like me to review your situation with you to see if a consumer proposal or any other option is right for you.