Getting a Loan During a Consumer Proposal: A Homeowner’s Guide
Getting a loan during a consumer proposal is possible, but the honest answer depends almost entirely on one thing: whether you own a home with equity in it.
If you do, you have real options, and they are better than most people expect. If you do not own property, your options during a proposal are limited and expensive, and we will be straight with you about that rather than waste your time. This guide covers both, but it is written primarily for homeowners.
What is a consumer proposal?
A consumer proposal is a legally binding agreement between you and your creditors, administered by a Licensed Insolvency Trustee. It lets you settle unsecured debts by paying back a portion of what you owe over a period of up to five years. It avoids bankruptcy and stops collection activity.
Importantly, a proposal covers unsecured debt. Your mortgage, home equity loan, and any secured lines of credit are not included. If you own a home, that distinction matters a great deal, because the equity in your property sits outside the proposal entirely.
The trade-off is credit. A proposal stays on your credit report for three years after completion or six years from filing, whichever comes first, and it makes traditional lenders reluctant. That is the problem most people are trying to solve when they land on a page like this one.
Can you get a loan during a consumer proposal?
For homeowners, yes, and often more easily than expected.
The lenders we work with assess primarily on the equity in your property rather than your credit score. Because the loan is secured against real property, a proposal on your credit file is not the obstacle it would be with a bank. We regularly arrange financing for homeowners who are actively in a proposal.
For non-homeowners, the picture is different and worth stating plainly. Without property to secure against, what is available during a proposal is generally high-cost unsecured credit, and taking it on while you are already in a repayment arrangement usually makes things worse rather than better. If you are in that position, your Licensed Insolvency Trustee is a better first call than a mortgage broker.
What homeowners actually use this for
Paying out the proposal early. This is the most common reason homeowners come to us. Using home equity to pay out a consumer proposal in one payment ends the proposal, which means credit rebuilding starts sooner rather than waiting out the full five-year term. For many homeowners this is the single most valuable thing they can do with their equity.
Consolidating what sits outside the proposal. Not every debt gets included. Post-filing obligations, secured debts, and arrears that accrued afterwards can all still be there, and equity can clear them.
Handling a genuine emergency. A failed furnace, a roof, a vehicle needed for work. Things that cannot wait five years.
Clearing property tax or CRA arrears. Debts registered against your home escalate independently of the proposal, and they carry their own enforcement risk.
What kind of financing is available to homeowners
Home equity loans. A lump sum secured against your property, at a fixed rate over a fixed term. The most straightforward option where you know the amount needed.
Second mortgages. Financing registered behind your existing first mortgage, leaving it untouched. If you have a good rate on your first, this avoids breaking it and paying a penalty.
Private mortgage financing. Where the situation is more complex, private lenders assess almost entirely on equity and property. Rates are higher, but private financing is usually a bridge rather than a destination — used to stabilize things, then refinanced once credit has recovered.
We do not arrange financing above 80% of a property's appraised value. That cap protects the equity you have built and means we will tell you honestly when the numbers do not work.
What we look at
Approval through our lender network turns on the property and the equity in it, not on your credit score.
- Equity in your home. The primary factor. Value less what you owe.
- The property. Location, type, and condition determine which lenders will consider the file.
- Your proposal. We will want to see the agreement and where you are in it. Being partway through is not a barrier.
- Credit and income. Relevant context, but not decisive. Bruised credit and hard-to-verify income do not rule you out.
Having your proposal paperwork and current mortgage statement to hand speeds things up considerably.
An example
A homeowner in Ontario, two years into a five-year consumer proposal, had built substantial equity in his property and was managing his proposal payments without difficulty. His credit score, though, meant no bank would consider him, and he faced three more years before he could start rebuilding.
We arranged a home equity loan to pay out his consumer proposal secured against his property. The funds paid out the remaining balance of the proposal in full, which closed it and started the credit rebuilding clock immediately rather than three years later. His monthly obligation was comparable to what he had been paying into the proposal, but with an end date he could see.
That is the outcome that makes this worth doing for a homeowner: not simply borrowing during a proposal, but using equity to end one.
Frequently asked questions about getting a loan during a consumer proposal
Can I get a mortgage during a consumer proposal if I do not own a home yet?
Buying while in a proposal is very difficult. Most lenders want the proposal discharged for around two years with re-established credit, and a down payment of at least 20%. If you do not own property, our equity-based approach does not apply to your situation and we would rather say so than string you along.
Will borrowing affect my consumer proposal?
You will need to involve your Licensed Insolvency Trustee before taking on new credit during an active proposal. Where the borrowing is being used to pay the proposal out in full, it generally simplifies matters rather than complicating them, but your trustee should be part of that conversation from the start.
How much equity do I need?
It depends on your existing mortgage balance and your property's value. We cap at 80% of appraised value, so the arithmetic is straightforward once we know both numbers. Our home equity calculator gives you an estimate in a couple of minutes.
Will this hurt my credit further?
Paying out a proposal early generally helps, because the clock on credit rebuilding starts at completion rather than at the end of the full term. Maintaining the new payment is what matters after that.
How quickly can this happen?
Approvals typically come back within 24 to 48 hours. Full funding, including appraisal and legal work, usually takes 5 to 10 business days.
Where to start
If you own a home and are in or recently out of a consumer proposal, it is worth finding out what your equity could do. See our consumer proposal and bankruptcy solutions for how it works, or get in touch and we will review your situation and tell you honestly what is available — including when the answer is that nothing sensible is.
