Consumer Proposals, Bankruptcy & Your Mortgage: What Canadians Really Need to Know

If you’ve ever gone down a Facebook rabbit hole looking for financial advice… you’ve probably seen some questionable posts.
Recently, I came across a few that were flat-out inaccurate — especially around consumer proposals, bankruptcies, credit scores, and how they affect your ability to get a mortgage in Canada.

And honestly?
It highlighted something I see all the time: Canadians making huge financial decisions without fully understanding how these programs will impact their future.

This year alone, I’ve spoken with dozens of people currently in a Consumer Proposal or Bankruptcy — and many were shocked to learn how long these records affect their mortgage options, interest rates, and overall financial flexibility.

So let’s simplify it.

This guide breaks down everything you need to know in clear, judgment-free language.

Because the truth is: life happens. Jobs were lost, incomes dropped, inflation soared, and many Canadians are still trying to regain their footing.

If you’re navigating debt, rebuilding your credit, or planning for a future mortgage, this guide is for you — and you’re absolutely not alone. ❤️

What Is a Consumer Proposal? (Canadian edition)

A Consumer Proposal (CP) is a formal agreement set up through a Licensed Insolvency Trustee.

Here’s what actually happens:

✔ Your trustee negotiates with your creditors--- You agree to repay part of what you owe — at a fixed monthly payment, over up to 5 years.

✔ Interest stops immediately---Creditors stop calling, and everything is rolled into one structured repayment plan.

✔ You keep your assets---Unlike bankruptcy, you keep things like your home and vehicle — but your mortgage cannot be included in a CP.

Here’s what most people aren’t told…

A Consumer Proposal is reported almost identically to a bankruptcy on your credit bureau.

This means:

• Your credit score takes a major hit
• The CP stays on your credit for up to 3 years after your final payment (so 5–8 years total)

Traditional mortgage lenders (banks, monoline lenders, credit unions) will not approve you until:

• 1–2 years after the CP is fully paid off, and
• You have 2 years of new, clean credit history with at least two active tradelines
• Even if your current mortgage is in good standing, you generally cannot refinance, transfer, or port your mortgage during a Consumer Proposal.

Can you still get a mortgage during/on an active Consumer Proposal?

Yes the day after discharge— but only with:

• Alternative (B-lender) financing 
• Private lenders
  

These require:

• Larger down payments (20–35%)
• Higher interest rates
• Higher lender fees (usually 1% of mortgage amount)

It’s not impossible — but it’s more expensive, and the options are limited.

What Is Bankruptcy in Canada?

Bankruptcy involves fully wiping out most unsecured debts — but it’s more complex than many people realize.

Here’s what happens in a bankruptcy:

• Certain assets may be sold to settle debts (varies by province)
• You must follow strict guidelines for 9+ months
  

Not all debts can be included:

• student loans under 7 years
• child or spousal support
• government fines and penalties
  

Your credit score takes an even bigger hit than with a CP, and the bankruptcy stays on your bureau for 6–7 years after discharge.

Mortgage rules after bankruptcy

Traditional lenders require:

• 1–2 years after discharge
• Two years of re-established credit
• Clean repayment history
  

If your bankruptcy involved a mortgage shortfall (e.g., foreclosure), qualifying again becomes more difficult and may require:

• Larger down payment
• More time passed
• Exception approvals
  

Alternative and private lenders may approve sooner — but expect higher rates and fees.

Debt Options Before Consumer Proposal or Bankruptcy

Many Canadians jump straight to CP/bankruptcy because it sounds like the “easy way out,” but there are often options that preserve your credit:

1️⃣ Consolidation Loan

Roll high-interest debts (like credit cards) into one structured loan with a much lower rate.

2️⃣ Line of Credit

Lower interest than a credit card and more flexible.

3️⃣ Balance Transfer Cards

0% or low introductory rates can give temporary relief while you pay down principal.

4️⃣ Mortgage Refinance (if you own a home)

If you have enough equity, you can:

• consolidate debt into your mortgage
• reduce your payments
• extend your amortization
• lower your overall interest costs

Yes — sometimes refinancing saves thousands per year compared to a CP.

5️⃣ Vehicle Loan Re-Amortization

Not glamorous — but extending your loan term can free monthly cash flow.

6️⃣ Lifestyle Downsizing

• Uncomfortable? Yes.
• Effective? Absolutely.

Temporarily reducing housing or vehicle costs can create breathing room to rebuild.

7️⃣ Stop Using the Credit Card (temporarily)

Many Canadians don’t know this:
Once you carry a balance month-to-month, all new charges accrue interest immediately — no grace period.

If you can’t pay it off in full, pause the card and use debit until it’s cleared.

The Bottom Line: Choose the Right Path — Not the Fastest One

Consumer Proposals and bankruptcies are not failures.
They’re financial tools meant to help Canadians reset when life gets overwhelming.

But they come with long-term consequences, especially when it comes to qualifying for a mortgage.

Before making the decision, ask yourself:

✔ Have I looked at refinancing?
✔ Have I explored consolidation or restructuring?
✔ Do I understand how long a CP/bankruptcy will impact my future goals?
✔ Have I talked to a mortgage professional?

Many people don’t — and later realize they could have avoided years of credit setbacks.

Need Guidance Before You Make a Big Financial Decision?

You don’t have to figure this out alone — and you shouldn’t.

Whether you:

✔ are considering a Consumer Proposal
✔ already filed one and want to plan your mortgage future
✔ want to consolidate debt through a refinance
✔ need a second opinion

…I’m here to help you understand your options clearly, judgment-free, and with a full long-term plan.

📞 519-339-0883
📩 [email protected]
🌐 www.chatwithashley.ca

Let’s get you back on track — and into a stronger financial position for your future.