If you are heavily in debt, you have the opportunity to improve your financial situation and even get a mortgage before you declare yourself bankrupt. Are mortgage consumer proposal worth it?
The cost of living in Canada is very high, in some respects even more expensive than in other countries. It is no wonder that a large portion of the Canadian population is struggling with debt. The flip side of the coin is that for some, the debt burden can become unaffordable and lead to bankruptcy. Therefore, in search of ways to improve their financial situation, people tend to file a consumer proposal in some situations.
The last thing you would think of when filling out the consumer proposal would be applying for a loan. However, if you dig deeper into the details, you will find that it is possible to get a mortgage loan if you have completed a proposal and ruined your credit score. The nuance is that you have to meet certain conditions to get a positive response from a money lender.
What is a mortgage consumer proposal?
This is an agreement between you and the moneylender, which is legally valid. This agreement will state how much you must repay to cover your debts. A licensed bankruptcy trustee will help you create a proposal for everyone you owe money to. You will need to get votes from your creditors for the finalized agreement. The proposal will go into effect once a majority of the creditors agree to the terms set forth in the document.
Once the mortgage consumer proposal goes into effect, all of your debts will be added together. From that point on, you will have to make a monthly payment, the amount of which will be specified in the agreement. The repayment period of the loan will also depend on the terms set out in the agreement. You would not have to contact all your creditors individually, as you have a trustee who is responsible for contacting your creditors. If you have the option, you can settle your debts that are set out in the consumer proposal earlier than you should.
One of the most important conditions you should take into account before making an application is that your debts should not be secured by any type of property. The minimum amount required is $1,000.
If the lenders do not agree with the terms of your agreement, you will have no other option but to file for bankruptcy.
Can you make an application for this type of document?
The consumer proposal is like the light at the end of the tunnel for people who have large debts and are in a difficult financial situation. This tool is like the last chance to save someone from bankruptcy.
Despite the obvious benefits of this tool, the consumer application may not be the best option for everyone. You should carefully consider the advantages and disadvantages of this tool and compare them with your financial and strategic plans.
The application process is not difficult. First, you should make sure that the amount of your debt is not higher than $250,000. If you have a spouse, your total debt should not exceed half a million dollars.
It is also important to note that not all types of debt are eligible to apply. For example, you may qualify for the consumer proposal if you have large debts on your credit cards or credit accounts.
The third important factor is that you must prove to the specialized structures that your financial situation is extremely difficult and you have no way to pay your debts.
Would it negatively impact your credit history?
Yes. The consumer proposal would have a strong negative impact on your credit history. It might be a good tool to solve your debt problems, but it would deal a severe blow to your credit score, lowering it to R7 status. This rating is only one point above bankruptcy and repossession.
The good thing is that your credit score is not in danger and is damaged forever. The R7 status would remain on your record for three to seven years after you have paid off all your debts as per the proposal. After that, you can begin to start rebuilding your credit score.
Would it affect mortgage renewal?
Buying a home is one of the most important events in life for almost everyone. No wonder you are wondering what impact the consumer proposal will have on your mortgage payments.
Firstly, if you have just signed a consumer contract, you will be considered a risky investment opportunity by creditors. For this reason, most lenders will not lend you money until you have completed the consumer proposal and have at least two years of clean history after completing the consumer proposal. Another difficulty is that you must prove to lenders that you have worked to rebuild your credit and that you have managed to save up for the 20% initial contribution.
However, to get around these strict conditions, you can look for another lender. Some lenders pay more attention to a borrower’s personal characteristics or take into account the hardship of their situation.
How long would it take to get approved for a new loan?
If you have managed to get your finances in order, you may be wondering when you can apply for a new mortgage. The answer depends on the terms set by the lender, as each has its own conditions. Traditionally, money lenders are reluctant to lend money to people who have just completed a consumer application until they have got their finances in order.
In theory, you can qualify for credit at any time, even if you find yourself in the middle of a consumer application. In practice, you’ll have to work hard to prove your creditworthiness to the lender and are absolutely dependent on their will. Please note that even if you are approved for a mortgage, you must use the funds you receive to pay off your debt from the consumer protection proceedings.
Mortgage Consumer Proposal – Final considerations
The consumer proposal can be a perfect tool for people who are on the verge of bankruptcy. The negative aspect of the consumer proposal is that it significantly affects your credit score. However, that does not mean you do not have a chance to rebuild your credit score later.