What happens to your assets in a consumer proposal?

One of the biggest concerns people have when facing financial difficulties is whether they'll lose their home, vehicle, savings, or other assets. If you're exploring debt relief options, understanding how your assets are treated under a consumer proposal can help you make an informed decision.  

In most cases, a consumer proposal allows you to keep all of your assets while bankruptcy may require you to surrender certain non-exempt assets. Understanding these differences can help you choose the option that best fits your financial situation. Learn more about what assets you can keep in bankruptcy. 

What’s a consumer proposal?

A consumer proposal is a legally binding agreement between you and your unsecured creditors. It allows you to repay a portion of your debt through affordable monthly payments over a period of up to five years. A Licensed Insolvency Trustee (LIT) negotiates with your creditors on your behalf and can create a legally binding resolution that significantly reduces your total debt while protecting you from collection calls, wage garnishment, and ongoing interest charges.

One of the biggest advantages of a consumer proposal over bankruptcy is that you remain in control of your assets. However, creditors expect higher monthly payments in consumer proposals to compensate for keeping assets. That's why the value of your assets are taken into account when your consumer proposal payment is calculated.  

Take a look at our frequently asked questions about consumer proposals to learn more. 

Can you keep your home in a consumer proposal?

Yes. In most cases, you can keep your home as long as you continue making your mortgage payments. In addition, filing a consumer proposal isn’t grounds for your mortgage lender to change your mortgage terms or begin foreclosure proceedings.

• While in a proposal, you can also:
• Renew your existing mortgage
• Sell your home
• Keep any proceeds from the sale of your home without changing your proposal payments

If your mortgage has little to no equity or if the payments have become unaffordable, surrendering the property before filing may be the best option. Any resulting mortgage shortfall can often be included in your consumer proposal. 

What happens to your vehicle in a consumer proposal?

You can generally keep your vehicle during a consumer proposal whether it’s owned outright, financed, or leased. If you own the vehicle free and clear and its equity exceeds your province's exemption limit, if any, that additional value may increase the amount creditors expect to receive through your proposal.

For leased or financed vehicles, you must continue making payments to keep them. Learn more about car repossession and how it works. 

Are savings and investments protected in a consumer proposal?

Yes. One of the most attractive features of a consumer proposal is that your savings and investments remain yours. You typically keep:

• Bank account balances
• TFSAs
• RRSPs, including recent contributions
• RESPs
• Other investments and savings accounts

You can also receive an inheritance, gift, or financial windfall while you're completing your consumer proposal without affecting the agreed-upon payment terms. 

What happens to tax refunds and government benefits in a consumer proposal?

If you file a consumer proposal, you'll continue filing annual tax returns and receiving the government benefits you're entitled to including:

• GST/HST credits
• Canada Pension Plan (CPP) benefits
• Old Age Security (OAS)
• Canada Child Benefit (CCB)

If you owe the Canada Revenue Agency (CRA), your tax refund may be offset and applied towards any income tax debt incurred before filing. Otherwise, you'll receive your annual tax refund in full. 

What happens to household goods and personal property in a consumer proposal?

In a consumer proposal, you keep all personal possessions including:

• Furniture
• Appliances
• Clothing
• Personal belongings
• Electronics
• Tools used for work
• Collections and valuable personal items
• Business assets

There are generally no restrictions on the value of the personal items you retain. Some people choose to sell valuable assets voluntarily to help fund their consumer proposal payments, but they aren't required to do so. 

What happens to credit cards and bank accounts in a consumer proposal?

While you can keep most bank accounts, you can’t keep your credit cards when filing a consumer proposal. When you file:

• You must surrender all existing credit cards.
• You must close any credit accounts.
• You may need to change banks if you owe money to your current financial institution.
• You can often begin rebuilding credit with a secured credit card shortly afterward. 

How does a consumer proposal affect my credit?

A consumer proposal typically lowers your credit score immediately and assigns an R7 credit rating to all included debts. For reference, an R1 is a perfect score and an R9 is a bankruptcy. The proposal will stay on your credit report for either three years from the completion date, or six years from the date you signed it, whichever comes first.

Rebuilding your credit after a consumer proposal takes time. You can start by applying for a secured credit card, which requires a deposit. Using it responsibly will help you establish a positive payment history. Always pay your bills on time and pay off your balances in full each month. Keep your credit utilization low by avoiding maxing out your card. Regularly check your credit report for errors and dispute any inaccuracies. 

If you're worried about losing assets because of debt, a LIT can review your situation and explain your options. A consumer proposal may allow you to eliminate debt while keeping the property you've worked hard to build. Book a free consultation with a Doane Grant Thornton Licensed Insolvency Trustee to determine the best solution for your circumstances.