Category: Consumer Proposal vs. Refinancing

Having financial troubles can be stressful no matter where you are in life – but it’s doubly so if you own a house.

There’s a common fear that financial restructuring will mean losing your home. Fortunately, there are ways to protect against this.

The first thing to do is to make sure that you stay up-to-date with your mortgage payments. If you haven’t defaulted on your mortgage, your chances of keeping your home through a financial crisis increase greatly.

Let’s look at some of the financial restructuring options you might have when you own your home…

1. Debt Consolidation

As long as your mortgage payments are up to date, a debt consolidation loan can be a good way to deal with outstanding unsecured debt.

Unsecured debt might be credit card bills, lines of credit, your cell phone bill, etc. It is anything not tied to collateral – so your mortgage and car loan would not fall under this umbrella.

Unsecured debt usually has a high interest rate, making your monthly payments even more expensive. This is where a consolidation loan can help. You can use the money to pay off your unsecured debts, and then pay back the consolidation loan at a fixed interest rate over a manageable schedule.

You won’t be paying as much in interest, so you can use the extra money to keep your mortgage payments up to date.

2. Home Equity

Sometimes your home can actually be a source of income for financial restructuring. If you have equity available, you might be able to use it to pay off your outstanding debts – essentially, this is a form of a consolidation loan.

Again, this is dependent on your mortgage payments being current and made on time every month.

3. Filing for a Consumer Proposal

If you don’t have enough equity available or aren’t eligible for a consolidation loan, filing for a consumer proposal is another option.

Consumer proposals deal with unsecured debt up to $250,000 (excluding your mortgage). In a consumer proposal, you make an offer to your creditors to settle your debts for less than what you owe. This offer must be accepted by the majority of your creditors and you must be able to prove they’ll get more money than they otherwise would if you filed for bankruptcy.

In most cases, you can keep your home when you file for a consumer proposal, as your assets remain untouched. Again, this depends on your mortgage payments being kept up to date and is based on you having enough income to continue paying your mortgage after the proposal.

A good financial advisor will structure your consumer proposal based on equity.

If you have more than $250,000 in unsecured debt, you might file for another kind of proposal or bankruptcy instead.

4. Filing for Bankruptcy

Filing for bankruptcy is where most people fear they will lose their home. This is because in a bankruptcy, assets are often sold to pay off debts – including in some cases your house.

However, this doesn’t always happen – and you may able to keep your home depending on the amount of equity you have available.

If:

• You don’t have much equity (this varies depending on province), and
• Your mortgage payments are up to date

your ability to keep your home increases substantially.

If you do have a lot of equity, you may still be able to keep your home by repaying your equity through borrowing money, or through a second mortgage.

A good financial advisor, like those at DebtCare Canada, will also help you structure your bankruptcy based on equity.

5. If You Can’t Afford Your Mortgage…

As we’ve discussed, keeping your home through financial restructuring largely depends on being able to continue making your mortgage payments.

If your mortgage is up-to-date, you’re less likely to lose your house. But what if even after consolidating debt and making a budget you don’t have enough income to make your mortgage payments?

This can be a whole other issue – but it’s important to remember that you still have options. You might need to:

• Make more income through asking for a raise or getting a second job.
• Or sell your home and downsize to a smaller mortgage.

While selling your home may not necessarily be the same thing as keeping it, it can be preferable to losing your home through having it seized. In this option, you would still retain the profits from the sale, and you could use the money to move into another, less expensive property.

A good financial advisor, like the ones at DebtCare Canada, can help you sort through your financial restructuring options, so your home is protected.

Contact us today for a free consultation. Call 1-888-890-0888 or visit www.debtcare.ca.