Filing for a consumer proposal can be an intelligent way to protect yourself from creditors and negotiate to pay off a portion of your debt. But have you ever thought about how a consumer proposal affects your home?
What is a Consumer Proposal?
A legally binding procedure, a Consumer Proposal enables you to negotiate your debt with creditors or extend the timeframe you must pay off your debt. Handled and assisted by a Licensed Insolvency Trustee (LIT), a consumer proposal is filed to help relieve you from the financial pressure of paying down your debts. A consumer proposal can buy you some time when it comes to paying down your debts or lessening your debt payments.
History of a Consumer Proposal
The Government laws on assets were quite restrictive in the beginning during the Consumer Proposal process. All of your assets were to be delivered to a Licensed Insolvency Trustee for valuation and sale if you wished to obtain a “Registered” status on your Consumer Proposal and prevent your creditors from forcing you into bankruptcy. The assets included your home, too, and you would then be required to either re-mortgage to dismiss the equity or sell the property at the earliest.
You could stay at your home if the Licensed Insolvency Trustee were ready to consider other arrangements, like a family member or a third party paying a lump sum equivalent to the equity. Hence, the LIT could forgo its interest in the property. If your home had small equity, the sales costs would yield only a tiny percent to the creditors. Hence, the LIT would have still been required to sell it. As this was one of the challenging circumstances faced by many people, it even led to some hassle, and many people were not ready to leave their homes.
A Licensed Insolvency Trustee used to ask permission to sell the debtor’s home to the creditor. The creditor has the freedom to:-
- Deny the application
- Grant the application and postpone it for up to 12 months
- Grant the application and permit the LIT to sell the home under certain conditions
When the recession hit worldwide, too many homes sold quickly. Many citizens were homeless, and they were affected physically and mentally by little money for creditors.
Amendments in Laws
The Government looked into this problem and finally made amendments to the laws.
- A debtor’s home must be excluded from a Consumer Proposal where it is of little value to creditors as long as it has a mortgage or guaranteed loan against it. The secured creditor consents not to claim the house under the Consumer Proposal.
- A change in property definition can help to get excluded from the Consumer Proposal as it needs to be changed to a “debtor’s dwelling house” rather than defining it as a “family home.”
- The creditor can now postpone selling a home for up to four years rather than the previous limit of 12 months.
Filing a Consumer Proposal: Will I lose my home?
In filing a consumer proposal, you will be functioning with a Licensed Insolvency Trustee to negotiate the creditor’s repayment. Any equity at your home should be considered when bargaining your offer. Once the creditors approve the consumer proposal, you get to keep your home by paying your creditors an equivalent of the home equity amount over a determined period. So, the new amendments can bring a massive change to thousands of people whose lives will be changed forever by having a Consumer Proposal. Eventually, they can also look forward to a debt-free future, safe and secure in their own home.
Are you planning to file a Consumer Proposal? Contact Dana MacRae – Licensed Insolvency Trustee, for a free and confidential consultation.