Roughly four out of every five consumer insolvencies filed in Canada are now proposals rather than bankruptcies, based on filing data from the Office of the Superintendent of Bankruptcy. That is a very large group of Canadians carrying an R7 on their credit file. Most of them have been told, usually by a bank, that a mortgage is off the table for years.
You can get a mortgage after a consumer proposal in Canada, and in some situations while you are still in one. What changes is which tier of lender will look at your file. Banks generally want the proposal completed with about two years of clean, re-established credit behind it. Alternative lenders will often look at you within months of your final payment. Private lenders price off the equity in the property, so they can fund during a proposal, frequently to pay that proposal out.
The part almost nobody explains is the timing. Your removal date at the credit bureaus runs from the day you make your final payment. The filing date barely matters. Finish early and the entire clock moves with you. That one detail separates a five-year wait from a two-year wait, and it is where private mortgage financing quietly does its most useful work.
What a consumer proposal actually does to your mortgage file
A consumer proposal is a legal settlement filed through a Licensed Insolvency Trustee under the Bankruptcy and Insolvency Act. You repay a portion of what you owe, usually over a term of up to five years, and your creditors write off the rest. It is not a bankruptcy. Lenders still read it as a serious credit event.
Every debt inside the proposal gets flagged with an R7 rating, and the proposal itself is registered as a public record. An underwriter pulling your bureau file sees both at once: the settlement, and the accounts sitting inside it. Your score takes the hit on filing, although for most borrowers the real damage came earlier, from the missed payments that led there.
How long it stays on your credit report
Equifax Canada removes a consumer proposal three years after you have paid it off in full, or six years from the filing date, whichever comes first. TransUnion Canada uses a similar rule but measures the six years from the date you defaulted on the account rather than from filing. Because the two bureaus calculate it differently, pull both reports. An error on one and not the other is common, and it costs people approvals.
Read that removal rule twice, because it drives every decision that follows. Take the full five years to pay and the six-year mark arrives first, so that becomes your date. Clear the proposal in two years and the three-year clock starts then, putting you clean at year five. Pay it out in year one and you are clean at year four. Finishing early is the only lever you actually control, and it is worth more than any credit repair product anyone will try to sell you.
One thing a proposal does not do is disturb a mortgage you are already paying. Filing will not force a sale and will not put a mortgage in good standing into default. A straight renewal with your existing lender normally goes ahead without a fresh credit pull. Switching lenders at renewal is the moment it bites, because that is a brand new application.
The three lender tiers and what each one needs
Canadian mortgage lending runs on three tiers, and a proposal moves you down that ladder rather than off it entirely. Working out which tier you belong to today is what stops you burning a hard credit inquiry on a lender who was never going to say yes.
| Lender tier | Earliest they usually look | Down payment or equity | What they weigh most |
|---|---|---|---|
| A lenders (banks, prime) | About two years after the proposal is completed | As little as 5% if the mortgage can be insured | Credit score, re-established trade lines, stress-tested affordability |
| B lenders (alternative) | Often within months of the final payment | Typically 20% to 25% | Income stability, payment history since filing, property quality |
| Private lenders | During the proposal, including to pay it out | Commonly 20% to 35% equity, property dependent | Equity position, exit plan, marketability of the property |
The insured mortgage rule is the one that catches people off guard. Default insurance from CMHC and the other insurers is generally unavailable while a proposal is active, and typically stays unavailable until roughly two years past completion with rebuilt credit. No insurance means no 5% down. So the practical floor after a proposal is 20% down. That floor comes from the insurer, and no broker can talk you around it.
B lenders sit in the middle, and they are the tier most Canadians in this situation should be aiming at. They price for risk, they read the story behind the file, and they move faster than a branch. Private lenders sit one step further out and are not federally regulated, so the qualifying stress test that OSFI applies to the banks does not bind them the same way. If you want the full breakdown of who sits where, we mapped it out in A lender vs B lender vs private lender in Canada.
Honestly, most people we speak to aimed at the wrong tier and collected a decline they never needed. A bank turndown while your proposal is still active tells you almost nothing about your file. It tells you that you knocked on the wrong door.
Using home equity to pay out the proposal early
If you own a home, you have an option renters do not. Refinance, pay the proposal out in a single lump sum, and start the three-year removal clock immediately rather than in year five.
The mechanics are simpler than they sound. Your trustee issues a payout figure that is good until a set date. A lender registers a new first or second mortgage against the property and sends the money straight to the trustee. The funds never touch your account. The trustee then issues a Certificate of Full Performance, and the proposal is closed. What was a five-year obligation becomes a finished file with a date on it.
Equity is what makes this work. Your score barely enters the conversation. Private lenders commonly want the combined loan to value to land somewhere around 75% to 80% of appraised value, and they want to see how you get out. To put numbers on it, a home appraised at $600,000 carrying a $300,000 first mortgage leaves meaningful room to clear a proposal balance that is often well under $30,000. We went through the equity math in detail in how much equity you need for a private mortgage.
These files stall in predictable places. Trustee payout figures expire, appraisals take a week, and the lawyer wants discharge paperwork before registering anything. Line those three up before you apply rather than after. The second place deals stall is the exit. A private mortgage is short term by design, so if there is no realistic route to a B lender in twelve to eighteen months, do not sign one. That route is the entire point, which is why we wrote a full guide on building a private mortgage exit strategy.
Paying out early is not free either. You are trading a settlement balance for a mortgage carrying a higher rate, lender fees and legal costs. Run that arithmetic honestly before you commit. If clearing the proposal three years sooner gets you back to bank pricing three years sooner, the trade usually pays for itself. If it does not, keep making the monthly payments and let the calendar do the work.
What to do in the 12 months before you apply
Whichever tier you are aiming at, underwriters are hunting for the same evidence: that the event is over and the behaviour changed. Twelve months of deliberate rebuilding does more for your application than any letter of explanation you will ever write.
The 4-point re-establishment checklist
- Two active trade lines, both reporting. A secured card paired with a small installment loan is the standard combination. They need at least twelve months of history before an underwriter treats your credit as re-established.
- Zero late payments on anything. One thirty-day late on a phone bill in month ten resets the story you have spent a year telling.
- Balances under 30% of the limit. A secured card with a $1,000 limit carrying $900 tells an underwriter you are still under pressure.
- Your Certificate of Full Performance in hand. Get it from your trustee the day you finish, then pull both bureau reports six months later and confirm every account inside the proposal is marked correctly.
The habit to avoid is shotgunning applications. Five lenders in three weeks produces five hard inquiries, and to an underwriter that reads as a borrower who has already been declined four times. Choose the right tier first. Apply once.
Solid Capital is a Canadian alternative lender working with homeowners and business owners the big banks have declined or under-served. We underwrite the full file, meaning equity, income and the real story behind the credit event, instead of stopping at a score. If you are partway through a proposal or have just finished one, start an application. It takes about five minutes, there is no impact to your credit to apply, and a Canadian advisor reviews every file personally. You can see exactly what happens after you submit on our process page.
A consumer proposal is a closed chapter with a date attached to it. Banks read the date. Good lenders read the file. Find out which one you are talking to before you apply.
Frequently Asked Questions
Can you get a mortgage while you are still in a consumer proposal in Canada?
Yes, though usually only from a private lender. Private lenders underwrite on equity and the strength of your exit plan rather than on your credit score, and many of these deals are structured specifically to pay the proposal out in full at funding. Banks and most B lenders will wait until the proposal is completed.
How long after a consumer proposal can you get a bank mortgage?
Most A lenders want the proposal completed plus roughly two years of clean, re-established credit afterward. Because the proposal is removed from your Equifax file three years after your final payment or six years from filing, whichever comes first, the practical wait ranges from about two to five years depending on how quickly you finish paying.
Does a consumer proposal stay on your credit report forever?
No. Equifax Canada removes it three years after the proposal is paid in full or six years from the filing date, whichever comes first. TransUnion Canada applies a similar rule measured from the date of default. Finishing your proposal early shortens the total time it shows on your report.
Can you refinance your home to pay off a consumer proposal early?
Yes, if you have enough equity. A lender advances funds against the property and pays your trustee directly, and the trustee then issues a Certificate of Full Performance. Private lenders commonly look for combined loan to value in the 75% to 80% range, although the ceiling depends on the property and its location.
Do you need 20% down to buy a house after a consumer proposal?
In most cases yes. Mortgage default insurance is generally unavailable until roughly two years after the proposal is completed and credit is rebuilt, and without insurance you cannot put down less than 20%. Once you are past that window with re-established credit, insured options open back up.
Does a consumer proposal affect your existing mortgage or your renewal?
Filing does not put a mortgage you are paying on time into default, and you are not required to sell your home. A straight renewal with your current lender normally proceeds without a fresh credit pull. Moving to a different lender at renewal counts as a new application, and that is where a proposal can cause a decline.
