Consumer Proposal BC: Does Consumer Proposal Affect Mortgage Renewal

What Is a Consumer Proposal And How It Can Affect You?

Unique financial situations come into play for many people, and choosing a consumer proposal in BC is something that some Canadians turn to when debts and other bills put them at risk of losing their homes.

A consumer proposal is an increasingly popular debt relief option for residents of British Columbia struggling with overwhelming debt. This legal agreement, administered by a Licensed Insolvency Trustee, allows individuals to repay a portion of their unsecured debts while avoiding personal bankruptcy.

I have personally witnessed clients that have had great success going through these debt consolidation programs. But there are things to be aware of, as debt owed to the same institution that holds your mortgage is something you should consider before including it into your restructuring.

I know how difficult it is, as a mortgage broker, to cover all the aspects of a transaction, both current and future, and the effects these may have on the clients. Probably, it’s similar to what credit counselors from BC consider when structuring a consumer proposal.

One thing I see often is clients calling me up one or two years after they have entered a consumer proposal. Sometimes they ask, “How will the consumer proposal I made in BC affect my chances of having the mortgage renewed by the bank?”. Other times they are in a panic and are telling me, “My bank will not renew my mortgage due to my consumer proposal.”

There are many things a counsellor should consider when preparing a consumer proposal for BC clients, such as reducing as much debt for the client and getting the best payment structure to maintain a successful repayment program. 

What is a Consumer Proposal?

A consumer proposal is a formal debt settlement agreement between you and your creditors. It’s designed to help consumers manage their debt problems by proposing to pay a percentage of what they owe over a period of up to five years. This debt solution is governed by the Bankruptcy and Insolvency Act and can only be filed through a Licensed Insolvency Trustee.

The Consumer Proposal Process in BC

The consumer proposal process in British Columbia involves several key steps:

• Initial Consultation: Meet with a Licensed Insolvency Trustee to discuss your financial situation.
• Proposal Development: Your trustee will help you create a proposal based on your ability to pay.
• Filing: The proposal is filed with the Office of the Superintendent of Bankruptcy.
• Creditor Approval: Creditors have 45 days to vote on the proposal.
• Implementation: Once approved, you make monthly payments to your trustee.
• Completion: After fulfilling the terms, you receive a Certificate of Full Performance.

Benefits of a Consumer Proposal in BC

• Stop interest charges and collection calls
• Reduce your total debt
• Protect your assets, including your personal residence
• Avoid bankruptcy
• Consolidate unsecured debts into one affordable monthly payment
• Improve your credit history over time

Struggling with mortgage renewal after a consumer proposal? We specialize in private lending and alternative solutions, including second mortgages, no income mortgages, and bad credit mortgages. Contact us today to explore your options!

CALL OR TEXT 778-839-3963

Consumer Proposals vs. Other Debt Relief Options

While a consumer proposal can be an excellent debt solution for many in BC, it’s essential to consider all options:

• Credit Counselling Programs: These can help with budgeting and may offer some interest relief, but typically don’t reduce the principal debt.
• Debt Consolidation: This involves taking out a new loan to pay off existing debts, potentially at a lower interest rate.
• Personal Bankruptcy: While more severe, bankruptcy might be necessary for those with overwhelming debt and limited income.

Rebuilding Credit After a Consumer Proposal

Completing a consumer proposal is a significant step towards financial recovery. Here are some tips for rebuilding your credit:

• Make all proposal payments on time
• Consider a secured credit card to start rebuilding credit
• Pay all bills promptly
• Monitor your credit report regularly
• Avoid taking on new debt unless necessary

Legal Protections in a Consumer Proposal

When you file a consumer proposal in BC, you gain several legal protections:

• Wage garnishments stop
• Creditors cannot take legal action against you
• Collection calls must cease
• Interest charges on included debts stop accumulating

These protections do not apply to debts arising from intentionally inflicting bodily harm, sexual assault, or fraud.

Consumer Rights and Responsibilities

As a consumer filing a proposal, you have both rights and responsibilities:

Rights:

• Protection from creditor harassment
• Fair treatment from your Licensed Insolvency Trustee
• The ability to amend your proposal if circumstances change

Responsibilities:

• Provide accurate financial information
• Attend two credit counselling sessions
• Make all required payments on time

How To Deal With Renewals If You Have a Consumer Proposal?

When it comes to consumer proposals in BC, the one thing I see as a mortgage broker dealing with renewals, or refinancing mortgages for clients that have gone into a consumer proposal, is that the debts owed to the same bank that holds the mortgage payments are causing issues at the time of renewal.

It can be more costly to refinance your existing mortgage if your bank will not renew your loan due to you walking away from a small credit card or an unsecured Line of Credit. 

Before including these debts, I would have a long talk with the branch manager where my debt is held to get some assurance that the debt owed will not affect my mortgage renewal.

I have seen clients go through with the proposal only to have the bank not renew 3 years later. In such situations, clients may have no options available to refinance and end up being forced to sell. 

Considering a consumer proposal or worried about its impact on your mortgage? We offer tailored advice on private lending, debt consolidation, and refinancing options like bridge mortgages. Reach out now for personalized support!

CALL OR TEXT 778-839-3963

Wrapping Up 

If you are a BC resident and are considering a consumer proposal as a way to save your home, make sure you keep your current mortgage lender happy and discuss in length what debt you should or should not include.

Remember, every financial situation is unique.The impact of consumer proposals on mortgage renewals varies depending on the lender and the individual’s overall financial situation.

If you’re considering a consumer proposal in BC or have questions about private lending, don’t hesitate to get in touch! At Your Equity, we will be happy to speak with you and provide options from 9am to 5pm, Monday to Friday. We provide a wide range of services, from spousal buyout mortgages and reverse mortgages to construction loans and mobile home financing. Contact us today to discuss your needs and let our experts guide you toward the best solution for your financial future!

CALL OR TEXT 778-839-3963

FAQs

Does a consumer proposal affect mortgage renewal?

While a consumer proposal may impact your credit rating, it doesn’t automatically prevent mortgage renewal. Your existing lender may still renew your mortgage, but you might face higher interest rates. It’s essential to communicate with your lender and explore options with your Licensed Insolvency Trustee.

How can a mortgage broker help with mortgage renewal? 

A mortgage broker can be an invaluable asset when navigating the complexities of securing a mortgage, especially after a consumer proposal. Here’s how we can help:

Expertise and Access

We have specialized knowledge and access to a wide network of private lenders, including those who work with individuals who have undergone consumer proposals. This expertise allows us to:

• Find lenders in BC more likely to approve your application
• Access loans that aren’t readily advertised to the public
• Potentially secure better interest rates and terms

Tailored Advice

We provide personalized guidance based on your unique financial situation. We can:

• Offer strategies to improve your credit score
• Help prepare a stronger mortgage application
• Explain complex financial terms and processes

Time and Effort Savings

Working with a mortgage broker can save you significant time and effort. We’ll handle much of the legwork, including:

• Researching suitable lenders and products
• Completing and submitting applications
• Negotiating with lenders on your behalf

Financial Benefits

We can help you save money in several ways:

• Secure lower interest rates
• Negotiate for lenders to waive certain fees (e.g., application, appraisal, origination)
• Find more favorable loan terms

Navigating Post-Consumer Proposal Challenges

For those who have completed a consumer proposal, we can:

• Guide you towards lenders more open to your situation
• Help you present your case in the best possible light

Ongoing Support

We won’t just help with the initial application. We’ll provide ongoing support, which can include:

• Advising on strategies to improve your financial situation
• Helping you transition to better mortgage products as your credit improves
• Offering guidance on refinancing options in the future

What debts are included in a consumer proposal?

A consumer proposal can include most unsecured debts, such as:

• Credit card debt
• Personal loans
• Payday loans
• Tax debt owed to the Canada Revenue Agency
• Student loans (if you’ve been out of school for more than 5 years)
• Secured debts like car loans and mortgages are not included.

How does a consumer proposal in BC affect my credit?

A consumer proposal will be noted on your credit report for 3 years after you’ve paid off all debts included in the proposal. While it does impact your credit initially, completing a proposal can be the first step towards rebuilding your credit history and achieving a brighter financial future.

Can I file a joint consumer proposal with my spouse?

Yes, couples can file a joint consumer proposal if they share joint debts. It’s important to note that each person must qualify individually for a consumer proposal, and it’s often recommended to file separately even if debts are shared.

What happens if I can’t make my consumer proposal payments?

If you miss three monthly payments, your proposal may be deemed annulled. However, your Licensed Insolvency Trustee or your mortgage broker can work with you to explore options, such as amending the proposal or considering other debt solutions.

Can I pay off my consumer proposal early?

Yes, you can complete your consumer proposal early if you have the means to do so. This can help you become debt free sooner and start rebuilding your credit faster.

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