Read this first
This page explains your options. It will not push you toward a form. If you have received a legal notice, speak to a lawyer or a Licensed Insolvency Trustee as well.
Who this is for: Homeowners who are in a consumer proposal or have completed one, and want to know what borrowing against the home would involve and cost.
On this page
Completing a consumer proposal is real work, often five years of steady payments. It is frustrating to finish and find that borrowing is still difficult. This page is general information, not legal advice, and your trustee knows your file in a way this page cannot.
What the situation means
A consumer proposal is a legal process run by a Licensed Insolvency Trustee in which you offer creditors part of what you owe, more time, or both. The Office of the Superintendent of Bankruptcy says it is open to people whose debts total $250,000 or less, not counting a mortgage on the home you live in, and that it cannot run longer than five years. You keep your assets if you keep paying secured creditors, which includes your mortgage.
From a lender’s point of view, a proposal is a recent record of not paying debts as agreed. The office says you are generally assigned the lowest possible credit score when a proposal is filed. That is why most banks go quiet.
The timeline and rules
The Office of the Superintendent of Bankruptcy says a consumer proposal stays on your credit record for the proposal term plus three years. Another of its pages says the length depends on your province, so ask a credit bureau to confirm the dates for you. When you finish the terms, you receive a certificate of full performance to send to credit reporting agencies.
During the proposal, the terms matter more than the calendar. The same office says missing three monthly payments causes the proposal to be deemed annulled, after which creditors can pursue collection. Any new borrowing needs to be weighed against your ability to keep making those payments.
Public records exist too. The office notes that proposal and bankruptcy records are public, so a lender can see them.
What you can do now
If the proposal is running, keep every payment on time. That is the first condition for everything else.
If it has finished, get your credit reports from both bureaus, check that the proposal is shown as completed, and keep your certificate. Start rebuilding with small, manageable credit and on-time payments. The Financial Consumer Agency of Canada notes that accurate information cannot be removed from your credit history and that improving a score takes time, so be wary of anyone who promises to fix it fast.
Then ask yourself why you need to borrow. If the purpose is a want, waiting may be the cheapest path. If it is a need, such as a repair or a debt that has grown, a short plan beats an open ended one.
Who to speak to first
Your Licensed Insolvency Trustee, even if the proposal is finished. They can tell you what the terms allow, what happens to the home, and whether your plan could put the proposal at risk.
A non-profit credit counsellor can help you build a budget and a rebuilding plan, and the Financial Consumer Agency of Canada says talking to one does not affect your credit score. A mortgage lender is a later step, after you know what you can afford.
The ways this can end
Most people in your position follow one of four paths. You wait until the record clears and a bank or credit union will consider you. You borrow privately now, accepting the cost, and aim to refinance with a cheaper lender later. You raise money another way, such as a family loan or selling something. Or you avoid new borrowing and focus on rebuilding.
Private lending is sometimes the only door open now, but a second mortgage that comes due in a year or two needs a plan for the day it does. If a bank will not lend then, you may need to renew with the private lender, which can carry another fee.
Where a second mortgage fits, and where it does not
The Financial Consumer Agency of Canada says a second mortgage is a second loan on your home, you must keep paying your first mortgage, lenders usually lend up to 80% of appraised value minus the mortgage balance, and rates are usually higher than a first mortgage. Fees for appraisal, title search, title insurance and legal work are common.
It can fit when the need is specific, the equity is solid, the loan is short, and you have a believable way to repay or refinance. The worked example shows how costly a bridge can be: about 28% of the amount borrowed in the year. It does not fit when the loan is meant to cover a monthly shortfall, since a proposal ends because income now covers the payments, and a high-rate loan can put that back in doubt.
Read how private and bank second mortgages compare and use the calculator with real quotes.
A plan for the next two years
A simple plan beats a hopeful one. Write down the date the proposal ends, then add three years to find when the record is due to clear, and confirm both with the bureau. Between now and then, keep a short list of milestones: certificate received, credit reports checked, one small credit account paid on time every month, an emergency fund started, and a note of any large costs coming up such as a roof, a vehicle or a mortgage renewal.
Put the renewal date of your mortgage on that list. A renewal during or soon after a proposal can be the point where the choices narrow, so ask your current lender early what it would offer. The Financial Consumer Agency of Canada says a bank should make sure renewal terms suit you, and it is worth asking whether that includes the rate and the term.
If a private loan still looks necessary, compare at least two quotes and keep the term as short as is realistic. The shorter it is, the less interest you pay, and the sooner you can move to a lower cost lender if one becomes available.
What not to do
Do not borrow during the proposal without your trustee knowing. Do not accept a loan whose term ends before you can realistically refinance. Do not pay an upfront fee to a business that promises to erase the record or guarantee a lender. And do not rush, since the records fade with time while a loan stays until it is repaid.
If you have spoken to your trustee and want to talk to a licensed mortgage professional, you can check your options. It is a request, and you can say no.
A 12 month private second mortgage used as a bridge to a bank refinance
Made-up figures. The loan is $30,000, interest only at an assumed 12%, with an assumed 2% lender fee, 1.5% broker fee and $1,500 for legal, appraisal and title. After twelve months an assumed $500 discharge fee applies, and the bank refinance that repays it carries an assumed $1,800 in legal and appraisal costs. This assumes a bank agrees to lend then, which nobody can promise.
- Interest for twelve months
- $3,600
- Fees at the start
- $2,550
- Discharge fee at the end
- $500
- Costs of the bank refinance
- $1,800
- Cost of the bridge year
- $8,450
$30,000 at 12%
$600 lender, $450 broker, $1,500 legal and other
Questions people ask
How long does a consumer proposal stay on my credit report?
The Office of the Superintendent of Bankruptcy says a consumer proposal stays on your credit record for the proposal term plus three years. Its other proposal page says the length can depend on your province, so confirm the dates with a credit bureau.
What is a certificate of full performance?
It is the document you receive once you have completed the terms of the proposal, according to the Office of the Superintendent of Bankruptcy. You send it to the credit reporting agencies. Keep a copy, since a lender may ask for it.
Can I get a second mortgage while the proposal is still running?
Some private lenders may consider it, but the proposal has terms you must keep, and new debt can affect them. Ask your Licensed Insolvency Trustee first. A lender willing to proceed without that conversation should make you cautious.
What happens if I miss payments in my proposal?
The Office of the Superintendent of Bankruptcy says missing three monthly payments causes a proposal to be deemed annulled, and creditors can then pursue collection unless a court orders otherwise or an amendment is filed. Call your trustee early if payments are at risk.
Is a private lender the only choice after a proposal?
No. A bank, credit union or an alternative lender may consider the file as time passes and credit rebuilds. Private lending is often the option that exists first, and it is priced higher. Ask what would need to change for a cheaper lender to say yes.
Sources
- Office of the Superintendent of Bankruptcy Canada: Consumer proposals
- Office of the Superintendent of Bankruptcy Canada: Consumed by debt? Information for consumers on the insolvency process
- Financial Consumer Agency of Canada: Borrowing against your home equity
- Financial Consumer Agency of Canada: Getting help from a credit counsellor