While a consumer proposal cannot wipe out a secured mortgage, it immediately stops all unsecured debt collections and garnishments. By legally eliminating your massive credit card, tax, and personal loan payments, a proposal instantly frees up thousands of dollars in monthly cash flow, giving you the money needed to cure your mortgage arrears and stop a Power of Sale in Ontario.
Falling behind on your mortgage is a homeowner’s worst nightmare. When the bank issues a Notice of Sale under Mortgage, the clock starts ticking loudly. In provinces like Ontario, the Power of Sale process is notoriously fast. If you do not pay the missed arrears and legal fees within roughly 35 days, the lender can legally evict you and sell your home on the open market.
Many homeowners desperately try to borrow more money or max out credit cards to save their house, which only makes the financial hole deeper. 💸 Instead of taking on more high-interest debt, the smartest strategy is often the exact opposite: legally wiping out your unsecured debt through a Consumer Proposal. By partnering with a Licensed Insolvency Trustee (LIT), you can aggressively restructure your finances, protect your home equity, and stop the eviction.
Step-by-Step Process in Ontario
Using a consumer proposal as a defensive strategy against a Power of Sale requires fast, strategic action. Here is the general process homeowners follow to save their property.
Step 1: Assessing the Power of Sale Threat
The process begins when you receive a formal Notice of Sale from your mortgage lender’s law firm. You must carefully read the document to find the exact “Redemption Date.” This is the deadline by which you must pay the arrears (the missed payments) plus the lender’s legal fees to put the mortgage back into good standing.
Step 2: Meeting with a Licensed Insolvency Trustee
Before the redemption period expires, you must immediately consult an LIT. 💼 You will provide a list of all your debts. The trustee will look at your massive unsecured debts (like $50,000 in credit cards and CRA taxes) that are eating up your monthly income and propose a legal plan to consolidate and slash them by up to 70% or 80%.
Step 3: Filing the Consumer Proposal
Once you sign the paperwork, the LIT files the consumer proposal with the federal government. This triggers an immediate legal Stay of Proceedings. While this stay does not stop the mortgage lender (because they are a secured creditor), it instantly stops all other creditors from suing you, calling you, or garnishing your wages.
Step 4: Redirecting Your Cash Flow
Because your massive unsecured debt payments have been replaced by one small, affordable monthly proposal payment, you experience an immediate surge in cash flow. 💰 For example, if you were paying $1,500 a month toward credit cards, that money is now sitting safely in your bank account, ready to be deployed.
Step 5: Curing the Mortgage Arrears
You take your newly freed-up cash flow and negotiate with the mortgage lender’s law firm. You use the money to pay off the mortgage arrears and legal costs before the redemption date expires. Once the arrears are cured, the Power of Sale is legally stopped, and you resume your normal, ongoing mortgage payments.
How Much Does it Cost in Canada?
Saving your home using this strategy involves dealing with two separate sets of costs: the mortgage penalties and the proposal fees.
- Lender Legal Fees: When a bank starts a Power of Sale, their law firm typically adds $2,000 CAD to $5,000 CAD in legal and administrative fees directly to your mortgage arrears. You must pay these to stop the sale.
- Consumer Proposal Costs: There are no upfront fees to file a proposal. The LIT’s federally regulated fees are deducted directly from the single monthly payment you make to your creditors.
- Monthly Proposal Payment: Depending on your income and debts, your unsecured debt payments could drop from $2,000 CAD a month to a much more manageable $300 to $500 CAD a month.
| Financial Obligation | Status Under Proposal | Action Required by Homeowner |
|---|---|---|
| Credit Card Debt | Slashed by up to 80% | Pay fixed monthly proposal amount. |
| CRA Tax Debt | Included and compromised | Pay fixed monthly proposal amount. |
| Mortgage Arrears | Unaffected (Secured) | Must pay in full to stop Power of Sale. |
How Long Does the Process Take?
Time is your biggest enemy when facing a Power of Sale. In Ontario, a Notice of Sale typically gives you just 35 to 40 days to cure the default. A consumer proposal can be filed by an LIT in a matter of 2 to 4 days. This rapid filing immediately stops all other unsecured collections, allowing you to quickly stockpile one or two paycheques to help cover the mortgage arrears before the eviction happens.
Frequently Asked Questions (FAQ)
Can I include my mortgage inside the consumer proposal?
No. A consumer proposal only deals with unsecured debt like credit cards, payday loans, and income tax. Your mortgage is a secured debt tied to your house, so the lender retains the absolute right to enforce the Power of Sale if you do not pay.
Will the bank renew my mortgage if I am in a proposal?
Generally, if you keep your payments perfectly on time after curing the arrears, standard “A” lenders (like major banks) will automatically renew your mortgage term. However, you will likely not be approved to refinance or borrow more money until the proposal is completed.
What happens if I have too much home equity?
If your home is worth significantly more than your mortgage, your unsecured creditors will demand a larger payout in the consumer proposal to match what they would receive if you went bankrupt. The LIT will carefully calculate this equity before filing.
Can a proposal stop an eviction if the sheriff is already coming?
No. If the redemption period has expired and the court has already issued a Writ of Possession to the sheriff, a consumer proposal cannot reverse the eviction. You must act immediately when the initial Notice of Sale arrives.
Do I lose my house if the proposal is rejected?
If creditors reject your proposal, you still owe your unsecured debts in full, making it harder to afford your mortgage arrears. However, most proposals are successfully negotiated and accepted if drafted properly by an experienced LIT.
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