Navigating the mortgage process can be challenging under normal circumstances, but it becomes even more complicated if you’ve gone through a bankruptcy or a consumer proposal. Many people assume that their dreams of homeownership are over after financial difficulties, but the truth is, you can still qualify for a mortgage—it just takes time, strategy, and the right approach.
In this article, we’ll break down the differences between bankruptcy and consumer proposals, the pros and cons of each, and what steps you need to take to secure a mortgage after experiencing financial hardship.
Bankruptcy vs. Consumer Proposal: What’s the Difference?
Before diving into how to get a mortgage, it’s important to understand the differences between bankruptcy and a consumer proposal. While both are tools to help you manage overwhelming debt, they operate in different ways and have different consequences.
Bankruptcy
Bankruptcy is a legal process that absolves you of most or all of your debts but comes with serious financial and credit consequences. When you file for bankruptcy, your assets may be seized (except for certain exemptions), and your credit report will take a significant hit. It typically stays on your credit report for six to seven years after discharge for a first-time bankruptcy.
Advantages of Bankruptcy:
- Eliminates most unsecured debts.
- Stops collection calls and legal actions.
- Provides a fresh financial start.
Disadvantages of Bankruptcy:
- Damages your credit score significantly.
- Certain assets may be lost.
- Harder to qualify for credit or loans afterward.
- Can impact employment in certain industries (e.g., finance).
Consumer Proposal
A consumer proposal is a legal agreement between you and your creditors where you settle your debts for less than what you owe, with structured payments over a period (up to five years). Unlike bankruptcy, you get to keep your assets, and it has a slightly lesser impact on your credit score.
Advantages of a Consumer Proposal:
- Avoids bankruptcy.
- Allows you to keep your assets.
- Stops collection actions and wage garnishments.
- Less severe impact on credit compared to bankruptcy.
Disadvantages of a Consumer Proposal:
- Still damages your credit score (stays on record for three years after completion).
- You must complete all agreed-upon payments before it’s cleared.
- Future credit approval may require higher interest rates and stricter terms.
Can You Get a Mortgage After Bankruptcy or a Consumer Proposal?
Yes! While both bankruptcy and consumer proposals impact your ability to get a mortgage, they do not make it impossible. Many lenders specialize in helping people with past financial struggles obtain a mortgage. However, you may have to take a few extra steps and work with alternative lenders rather than major banks.
Steps to Take Before Applying for a Mortgage
If you’ve been through a bankruptcy or consumer proposal, follow these steps to improve your chances of getting a mortgage:
- Rebuild Your Credit
Your credit score plays a major role in mortgage approval. Since bankruptcy and consumer proposals significantly lower your score, rebuilding it should be your first priority.
- Get a secured credit card and make consistent payments.
- Use a small amount of credit and pay off balances in full every month.
- Avoid late payments on any existing bills or debts.
- Consider a credit-building loan or program.
- Save for a Larger Down Payment
If you’ve had a bankruptcy or consumer proposal, traditional lenders may require a larger down payment. While most homebuyers aim for 5-10%, you may need 20% or more to qualify, especially if your credit is still weak.
- Work with an Alternative Lender
Big banks are unlikely to approve a mortgage application shortly after financial difficulties, but alternative lenders and B lenders (such as trust companies) offer mortgage solutions for people with past credit issues. However, expect higher interest rates and stricter lending terms.
- Show Stable Income and Employment
Lenders want to see that you have stable, reliable income. Having a steady job or a consistent self-employed income can help assure lenders that you can manage a mortgage payment.
- Wait it Out if Needed
If you can’t secure a good mortgage deal right away, waiting a couple of years can improve your chances. The more time that passes after bankruptcy or a consumer proposal, the better your credit will recover, and the more lenders will be willing to work with you.
- Get a Mortgage Pre-Approval
Before actively house-hunting, get pre-approved for a mortgage. This will give you a realistic idea of what you can afford and what terms lenders are willing to offer you.
What Type of Mortgage Can You Get After Bankruptcy or Consumer Proposal?
After a bankruptcy or consumer proposal, the type of mortgage you qualify for depends on how well you’ve rebuilt your financial standing.
A Lender (Big Banks & Credit Unions)
- Requires at least 2-3 years after bankruptcy or consumer proposal discharge.
- Minimum credit score of 650+.
- Requires a solid credit history since discharge.
- Competitive interest rates but strict qualifications.
B Lender (Trust Companies, Alternative Lenders)
- Will consider applicants 1-2 years after discharge.
- Credit scores of 550+ are typically required.
- Requires at least a 20% down payment.
- Interest rates are higher than traditional banks.
Private Lenders
- Available to borrowers with recent bankruptcies or consumer proposals.
- No strict credit score requirements but requires significant down payments (25-35%).
- Short-term, interest-only loans with very high rates.
- Ideal for temporary solutions while rebuilding credit.
Final Thoughts: Is Homeownership Still Possible?
Absolutely! While a bankruptcy or consumer proposal can set you back financially, it doesn’t mean you’ll never own a home. With patience, financial discipline, and the right mortgage strategy, you can rebuild your credit and secure a mortgage. The key is to demonstrate responsible financial habits, save diligently, and work with the right lenders.
If you’re not sure where to start, consulting a mortgage broker with experience in helping clients post-bankruptcy can make all the difference. They can connect you with lenders willing to work with your situation and provide guidance on improving your mortgage eligibility.
At the end of the day, financial setbacks don’t define your future — your actions do. Stay focused, rebuild your credit, and take the right steps, and homeownership will be within reach sooner than you think.
