Can You Keep Your House or Car in a Consumer Proposal?

The short answer has conditions

The Office of the Superintendent of Bankruptcy explains that a consumer proposal lets you retain assets when you meet the proposal's terms and continue paying secured creditors. That is a meaningful difference from a bankruptcy assessment, but it is not a blanket guarantee that you can keep every asset in every situation. Read the OSB's consumer proposal guide.

Before relying on that possibility, ask an LIT to review your ownership, financing contracts, arrears and budget. A house can have more than one registered debt. A vehicle can be financed, leased, jointly owned or owned outright. Those are different starting points.

A proposal does not replace a mortgage or car payment

The legal stay that protects included unsecured debts usually does not cover secured-debt enforcement. If a lender has rights against your property, filing a proposal is not permission to stop that lender's payments. The OSB describes these limits in its collection protection guide.

If you are already behind, raise that at the start of the meeting. Ask whether an arrears arrangement is needed and whether the creditor has started enforcement. Keep copies of all notices. A proposal payment that looks manageable on its own may not solve a separate mortgage shortfall.

Understand equity before discussing an offer

Equity is the value remaining after debts secured against an asset are considered. As a simple starting example, a car worth $18,000 with financing of $13,000 has $5,000 of gross equity before any relevant costs or adjustments. That calculation does not tell you what a proposal must offer or what would be exempt in a bankruptcy.

An LIT can explain how your assets, provincial exemptions and the alternative of bankruptcy affect the assessment and creditor negotiations. The OSB notes that bankruptcy exemptions vary by province and that the proposal payment depends on both your situation and what creditors accept. Compare the OSB's debt solutions.

Use current estimates and label them clearly. A remembered purchase price is not necessarily today's market value. Bring loan payout information where available, and ask what supporting valuation the trustee needs rather than paying for a valuation before you know the requirements.

Budget for the asset, not only the loan

The following is an invented vehicle budget to show the method. It is not an average Canadian cost or a recommended spending limit.

In this example, the full cost is $410 more than the loan instalment. A household using only $350 in its budget would overlook expenses that still need funding. Replace every number with your own circumstances, including parking, winter tires or work-related travel where relevant.

For a home, do the same exercise with mortgage payments, property tax, insurance, utilities, condo or strata fees and maintenance. Avoid counting the same expense twice if your lender collects it with your mortgage payment.

Prepare a document pack for the assessment

• Mortgage, loan or lease statements and recent payment history.
• Ownership and co-ownership details.
• Any notice of arrears, legal action or enforcement.
• A reasonable current value estimate, with the source noted.
• Insurance, tax and operating costs.
• Your household income and other essential expenses.

If someone else owns a share, explain that clearly. Do not assume that a proposal filed by one person settles another person's loan or changes their ownership rights. List guarantees and joint debts separately for the trustee to examine.

Ask about the alternatives before making a decision

Questions worth bringing include: What happens if I keep this asset? What happens if I sell or surrender it? Could a balance remain after sale? How would a renewal or lease expiry fit into my budget? Which commitments continue outside the proposal?

Do not transfer an asset or take on new secured borrowing just to prepare for a proposal without discussing the implications with an LIT. Bring the proposed transaction to the assessment first. For the broader differences, read our consumer proposal versus bankruptcy guide. This article is educational and cannot determine the treatment of your property.