What Happens to your Home and Other Assets When you File a Consumer Proposal?
When people start searching for help with financial issues, one of the concerns that many have is what will happen to their home, their car and their other assets. These are items that you have worked hard for, items that you need for your day-to-day life and items that you would obviously like to keep.
So what happens to these assets when you file a consumer proposal?
The good news is that your assets can be protected under a consumer proposal. Unlike with a bankruptcy, where you may lose some of your assets depending on their value and the province that you live in, a consumer proposal allows you to keep what you own as long as the creditors agree to the amount you have3 committed to repay. This is particularly important if you own a vehicle, have equity in your home. Money invested in an RRSPs is generally protected from creditors with some exceptions Money invested in, RESPs or TFSAs. is generally not protected under a bankruptcy but may be under a consume proposal.
Your Home, Your Mortgage & Consumer Proposal
As mentioned, you keep your home when you file a consumer proposal. Even better, your lender cannot foreclose on your home or change the terms of your mortgage just because you have filed a consumer proposal. As long as you continue to make all of your mortgage payments, there should not be any issues with your home or your mortgage lender.
If you need to renew your mortgage while you are under consumer proposal, you should be able to qualify for renewal as long as you have made your mortgage payments on time and can show that you will be able to keep on making these payments.
In general, as long as you continue to make monthly mortgage payments and don’t fall behind, your home and your mortgage will remain as they are now. You won’t be in danger of losing your home.
Your Vehicle & Consumer Proposal
Much like with your home, you will most likely be able to keep your vehicle as long as you do not miss or fall behind on any payments. If you own your vehicle outright (meaning you do not have any lease or financing payments to make on the car) there is no issue. You can continue to own your car and use it as you normally do. If you have loan or lease payments remaining on your vehicle, you will need to continue to make these payments in order to keep the vehicle.
RRSPs, RESPs, TFSAs & Consumer Proposal
Your investments are important. When you invest in a RRSP or an RESP you are saving for your future. You want to ensure that you have money for your retirement or for your children’s education. These investments are a good idea and can significantly help you in the future.
In the majority of cases and where your creditors accept your proposal to pay a lessor amount as fair, you are able to keep your RRSP, RESP and any other assets that you have when you file a consumer proposal. A consumer proposal generally does not include surrendering your assets or investments. This is a significant advantage of a consumer proposal over a bankruptcy.
In a bankruptcy, you are usually able to keep most of your RRSPs, but will likely lose contributions made in the last 12 months. You will also likely lose your RESP and TFSA savings in a bankruptcy, since these are treated as assets. This is an important fact to consider when deciding between bankruptcy and consumer proposal.
A Consumer Proposal Helps you Protect your Assets
When you file a consumer proposal, you agree to make regular payments for a predetermined period of time. Your bankruptcy trustee will review your financial situation and determine what a fair payment is to your creditors and compare that to how much your creditors would get if you were to declare bankruptcy. When the creditors review this offer and see that they will receive more under a proposal they are likely to accept your offer. This is done to encourage your creditors to accept your proposal and also so that you will be able to keep your assets.
For example, if you had debts of $25,000 and non-exempt assets of $5,000, in a bankruptcy your creditors would receive about 20 cents on the dollar ( before fees) and you would loose your assets. However, in a proposal, if you offered to pay your creditors $7500 over 60 months ( or $125 per month) your creditors would be better off by $2500 and you get to keep your assets of $5000.