Read this first. This article is general educational information about how lenders treat consumer proposals. It is not insolvency advice, credit counselling, legal advice or tax advice, and it is not a recommendation to file — or not to file — anything.
Only a Licensed Insolvency Trustee (LIT) is federally authorized to administer a consumer proposal in Canada. Whether a proposal, a consolidation, a refinance or something else is appropriate for you is a conversation to have with an LIT and/or a non-profit credit counsellor before you take any step. You can verify a trustee's licence through the Office of the Superintendent of Bankruptcy.
Most of the people who call us about consumer proposals are not asking an academic question. They are asking one of four very concrete ones: Can I still buy? Can I refinance? What happens to the house if we separate? Can I consolidate what I owe and keep the home? The answers are different depending on where you are in the process — and, more than anything else, on how much equity sits in the property.
This is Part 1, and it is about consumer proposals only. Bankruptcy — how it treats equity in a home you already own, what an LIT can require you to do with non-exempt assets, and how the mortgage timeline differs — is Part 2.
What a consumer proposal is, in the words of the statute
A consumer proposal is a formal, legally binding arrangement made under Division II, Part III of the Bankruptcy and Insolvency Act (BIA). It is not a private debt-settlement program, and it is not the same thing as bankruptcy. The Act sets out who can use it:
66.11 — "consumer debtor" means an individual who is bankrupt or insolvent and whose aggregate debts, excluding any debts secured by the individual's principal residence, are not more than $250,000 or such other maximum as is prescribed.
— Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, s. 66.11 (Justice Laws Website)
Two things in that definition matter enormously to homeowners. First, the $250,000 ceiling excludes the mortgage on your principal residence — so a homeowner with a $600,000 mortgage and $90,000 of unsecured debt is still measured against the $250,000 test using the $90,000 figure. Second, where two people file jointly, the combined limit is $500,000 on the same exclusion basis.
The Act also caps how long a proposal can run and defines when it collapses:
66.12(5) — A consumer proposal must provide that its performance is to be completed within five years after its acceptance by the creditors.
66.31(1) — a consumer proposal is deemed to be annulled where the consumer debtor is in default to the extent of an amount equal to or more than the amount of three payments where payments are required to be made monthly or more frequently…
— BIA, ss. 66.12 and 66.31
Plain-language version: the maximum term is five years, and three missed monthly payments is enough for the whole arrangement to be deemed annulled — at which point creditor protection ends and the original balances come back. That single provision is why "affordable monthly payment" matters more than "biggest debt reduction" when a proposal is being designed, and it is squarely a discussion for your trustee.
MNP, Canada's largest insolvency practice, summarizes the mechanics the same way in its public consumer-proposal material: an LIT reviews your assets, income and debts, negotiates a settlement with your unsecured creditors, and once creditors accept, the payments are fixed, interest stops accruing on the included debts, and wage garnishments and collection calls on those debts stop. See MNP LTD — Consumer Proposals for their full explanation and process walkthrough.
The general process, start to finish
- Free assessment with a Licensed Insolvency Trustee. The LIT reviews income, assets, secured and unsecured debts, and explains the full menu of options — which includes doing nothing, consolidating, credit counselling, a proposal, or bankruptcy.
- The proposal is drafted and filed with the Office of the Superintendent of Bankruptcy. Filing triggers an automatic stay of proceedings on unsecured debts — collections, garnishments and interest on included debts stop.
- Creditors vote (45 days). Creditors have 45 days to accept, reject or request a meeting. Acceptance is by majority in dollar value of proven claims. Many proposals are accepted without a meeting ever being held.
- Payments begin. Fixed monthly payments, typically over 36–60 months, subject to the five-year statutory maximum.
- Two counselling sessions. Mandatory financial counselling sessions are part of the process.
- Certificate of Full Performance. When the last payment clears, the LIT issues a certificate confirming the proposal was completed. This document is the one mortgage lenders will ask you for — keep it somewhere you can find it.
What actually shows on your credit — and for how long
This is the part borrowers most often get wrong, because two separate clocks are running at the same time.
- Rating on the included accounts: every unsecured account in the proposal is re-rated R7 ("making regular payments through a special arrangement to settle debts"). R7 is not the worst rating available (R9 is), but no prime lender treats it as neutral.
- The public-record entry: the proposal itself is recorded separately from the individual trade lines.
- Retention: Equifax Canada generally purges a consumer proposal three years after it is paid in full, or six years from the filing date, whichever comes first. TransUnion Canada generally reports it for three years after completion.
Do the arithmetic on a typical 48–60 month proposal and you get the number most people have heard: the fact that you filed can realistically follow you for roughly six to seven years from the day you filed. Finishing early compresses that window at both ends — which is exactly why homeowners with equity sometimes look at a refinance to accelerate the payout. Bureau retention policies do change; confirm current rules directly with Equifax Canada and TransUnion Canada, and pull your own reports before you make any decision based on timing.
How mortgage lenders actually treat a consumer proposal
There is no single national rulebook here — each lender and each mortgage default insurer sets its own policy, and those policies change. What follows is how the market generally behaves, not a promise of what any lender will do for you.
While the proposal is still active
Prime and insured financing is effectively off the table until the proposal is completed and discharged. Alternative (B) lenders and private lenders can and do transact during an active proposal, but they underwrite differently: the file is assessed on property value, loan-to-value, marketability and a credible exit rather than on beacon score alone. Expect a larger equity requirement, a rate premium, and lender/broker fees.
After the certificate of full performance
The rule of thumb across the Canadian market is often described as "2 and 2":
- Two years from the date the proposal was paid in full and discharged — not from the date it was filed.
- Two re-established credit facilities (for example a secured credit card and an auto or installment loan) reporting clean, with reasonable limits, for that same two-year period.
Meet both and you are generally back in the conversation for prime and insured lending on normal terms. Meet one but not the other, or sit somewhere in between, and B-lender pricing is usually where a file lands. This is why the single most valuable thing a borrower can do the day a proposal completes is start rebuilding credit deliberately — the two-year clock does not start on its own.
The most common expensive mistake: waiting five years to finish a proposal, then discovering the two-year re-established credit clock only starts at that point — and that no trade lines were opened in the meantime. That turns a five-year problem into a seven-year one. Rebuilding can and usually should begin well before the final payment; ask your trustee what is appropriate in your case.
The four homeowner scenarios
1. You want to buy
With an active proposal, insured (high-ratio) financing is not realistic. Alternative lenders will generally want meaningful down payment — commonly 20%+ — and will price accordingly. Post-discharge, the "2 and 2" test is the gate to insured lending. If you are house-hunting mid-proposal, the honest sequencing conversation is usually about whether to buy now on B-lender terms with a plan to move to prime later, or to wait — and that depends on your timeline, not on a general rule.
2. You want to refinance the home you already own
This is where equity changes everything. Refinances are conventional (uninsured) lending capped at 80% loan-to-value on a residential property. If your home is worth $900,000 and the mortgage is $500,000, there is room — subject to appraisal, lender policy and approval — for a total of roughly $720,000 in financing. That spread is what makes a lump-sum payout of a proposal mathematically possible for many homeowners.
The structure is straightforward: your trustee confirms the exact payout figure, the new financing funds it directly, the proposal is completed, and the certificate of full performance is issued years earlier than it otherwise would have been. That also starts the two-year requalification clock earlier and shortens the bureau retention window. Whether the cost of the new money is worth that acceleration is a numbers question unique to your file.
3. You are separating or divorcing
Separation plus an active proposal is the hardest of the four, because two things happen at once: household income splits, and one spouse usually needs to buy the other out of the matrimonial home. If the proposal was filed jointly, both parties remain bound by it. Standard spousal-buyout programs generally require clean, prime-eligible credit, so an active proposal typically pushes the buyout to alternative or private financing — often structured with the proposal payout built into the same transaction so that one financing event resolves both problems. Family-law obligations should be reviewed with a family lawyer, and the proposal implications with your LIT, before financing is arranged.
4. You own a home, you want to consolidate, and you want to keep the house
This is the scenario we see most often, and it is the one where the order of operations matters most. A consumer proposal is not the only route out of unsecured debt for a homeowner with equity — a consolidation refinance may accomplish something similar without an insolvency filing, or it may not be available or advisable at all. Which is better depends on your equity position, income, the size and type of the debts, whether any of it is secured, and how the payments compare.
We are not the right people to tell you which one to choose. An LIT can model the proposal path; a non-profit credit counsellor can model a debt-management plan; a mortgage professional can tell you what financing your equity will actually support and at what cost. Getting all three views before deciding is not overkill — it is the responsible sequence.
Where private mortgages fit
Private and alternative mortgage capital does one specific job in insolvency situations: it converts equity you already own into a lump sum that resolves the arrangement now, rather than in year five. In practice that looks like:
- Paying out an active consumer proposal in full so the certificate of full performance is issued immediately and both the discharge and requalification clocks start.
- A second mortgage behind a low-rate first where breaking an existing mortgage at a good rate would cost more than the new money.
- Refinancing out of a private mortgage later, once credit has been re-established, into B or prime pricing. The exit is part of the plan from day one — a private mortgage arranged without one is a problem deferred, not solved.
Pricing on these files reflects the risk: in the current Ontario market, private first mortgages generally sit meaningfully above bank rates and second mortgages above that, with lender and broker fees expressed as a percentage of the loan amount. The right way to evaluate it is total cost over the intended term against the cost of doing nothing — not the headline rate on its own. All financing is subject to lender approval, credit qualification and property valuation.
Timeline at a glance — and what Part 2 covers
| Consumer proposal | Bankruptcy (Part 2) | |
|---|---|---|
| Statutory basis | BIA Division II, Part III | BIA Parts II–VI |
| Typical duration | 36–60 months (5-yr statutory max) | 9–21 months for a first bankruptcy, income-dependent |
| Credit rating | R7 on included accounts | R9 |
| Bureau retention | ~3 yrs after completion / 6 yrs from filing | Generally 6–7 yrs from discharge for a first bankruptcy |
| Assets & home equity | Assets are not surrendered; equity is factored into the offer | Non-exempt assets vest in the trustee — covered in Part 2 |
| Prime mortgage re-entry | ~2 yrs after discharge with 2 re-established trade lines | ~2 yrs after discharge, generally with stricter scrutiny |
Part 2 — Bankruptcy and Your Mortgage takes the bankruptcy side of that table apart in the same detail — what happens to home equity when non-exempt assets vest in the trustee, when selling a property becomes part of the process, Ontario's exemption rules, surplus income, and how private financing is used to buy equity back out of an estate so a family can stay in the house.
Sources and where to get real advice
- Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 — Justice Laws Website (ss. 66.11, 66.12, 66.31 quoted above)
- Office of the Superintendent of Bankruptcy Canada — licence verification, insolvency statistics, debtor resources
- MNP LTD — Consumer Proposals — process overview from Canada's largest insolvency practice
- Equifax Canada — credit report education and TransUnion Canada resources
- Financial Consumer Agency of Canada — independent guidance on debt options and credit reporting
Statutory text is quoted for reference and may be amended; always read the current version on the Justice Laws Website. Lender and insurer policies referenced here are general market practice and are not commitments by any lender.