Selling your house when you have too much debt: before, during, or after a proposal
Can I sell my house during a consumer proposal?
Yes. It is still your house. What the proposal speaks to is not whether you can sell but where the money goes, and the first step is to talk to your trustee before signing a listing.
Who these remedies are for. Everything on this page about a consumer proposal or a bankruptcy applies to a person who is genuinely insolvent under the Bankruptcy and Insolvency Act: someone who cannot pay their debts as they come due, or who owns less than they owe. That is not a formality. It is the first thing I assess, and the law requires me to. If you are not insolvent, these are not your remedies, and arranging your affairs to look insolvent when you are not is the worst thing you can do: the Act lets a trustee reverse payments and transfers made before a filing, the Official Receiver examines a bankrupt under oath about the causes of the bankruptcy and what happened to the property, and a discharge can be opposed on exactly those facts. I am bound by my Code not to assist anyone down that road, and I will not.
I am Paul Franchi, a Licensed Insolvency Trustee in Ontario, and a lawyer by training. This is one of the practical questions homeowners ask when debt and housing decisions collide. Here is the actual position, and then the decision that sits behind the question, which is whether selling the house is the right move at all, and if so, in which order.
A consumer proposal does not take your home, and nothing in it forbids you from selling. That is the law and it is the design: in a proposal, your property never passes to anyone. What the proposal may do is speak to the money the sale releases. Whether the equity you free has to go into the proposal depends on the terms of your own proposal, which were set on the basis of what you owned when you filed. A proposal may be written so that the administrator’s consent is needed to sell the home, or so that net equity above a stated figure is paid into the proposal; where the terms are silent, you may sell, and the equity stays yours while the proposal is performed, though a sale that shows far more equity than your creditors were told about invites a request to amend the terms. So the sequence is fixed: read your proposal, or ask your administrator, before you list. The rest of this page is about why the sequence matters even more before you file than during.
Put these five numbers and documents on one page before you list
- A realistic sale-price range, with the date and source of the estimate.
- The lender’s current mortgage payout statement, including any penalty and discharge fee.
- A written estimate of commission, tax, legal, moving and repair costs.
- Every unsecured debt balance and current minimum payment.
- If a proposal is already running, its exact terms and the administrator’s written answer about how a sale would be treated.
Then compare the net amount left after a sale with the monthly cost of keeping the house and dealing with the unsecured debt another way. If the sale will not clear every mortgage, get the lender and closing lawyer involved before accepting an offer. Still not sure where you stand? Send me your question. I read them myself and I answer them personally. If you want to talk through next steps, I can help directly in Ontario, and the other Licensed Insolvency Trustees I work with cover the rest of Canada. Paul Franchi, Licensed Insolvency Trustee.
Should I sell my house to pay off debt at all?
Compare the net proceeds of a sale with the cost of keeping the home and the available ways of dealing with other debt. A sale may leave cash, or it may leave a shortfall that needs its own plan and the lenders’ agreement. Run both calculations before committing to either route.
Here is an illustrative household. The house is worth $900,000. The mortgage is $600,000. There is $80,000 of unsecured debt: cards, a line of credit, a loan. The idea of selling arrives as relief: sell, clear everything, start again. Every cost below is a hypothetical illustration input. The tax calculation uses thirteen per cent; the three-month interest calculation uses $600,000 at 3.94 per cent a year, and the payment calculation uses semi-annual compounding. Replace these assumptions with written estimates. The rent line excludes utilities and tenant insurance, and the mortgage payment includes principal repayment, so these are cash-flow illustrations, not a complete comparison of wealth after three years.
| Selling to clear the debt | Amount |
|---|---|
| Sale price | $900,000 |
| Less the mortgage | $600,000 |
| Less illustrated selling costs: commission $45,000; tax on commission $5,850; three months’ interest $5,910; legal fee $2,000; tax on legal fee $260; discharge registration $300; moving $2,700 | $62,020 |
| Net in hand | $237,980 |
| Less the $80,000 of unsecured debt | $80,000 |
| Left | $157,980 |
| Three years of illustrated rent at $3,200 a month, before utilities and tenant insurance | $115,200 |
| Keeping the house and dealing with the debt | Amount |
|---|---|
| Mortgage payment on $600,000 over 25 years at an illustrated 3.94 per cent | $3,137 a month |
| Minimum payments on $80,000 of card debt at 20.99 per cent (3 per cent of balance) | $2,400 a month |
| Of which interest alone | $1,399 a month |
| The same $80,000 in a consumer proposal | if eligible, a payment assessed using the full income, asset and debt picture; retaining the house also requires keeping the mortgage current |
Read the two tables together. On these inputs, the sale leaves $157,980 after the mortgages, illustrated costs and unsecured debt are paid. Three years of the illustrated rent uses $115,200, leaving $42,780 before other living costs. Keeping the house involves a $3,137 mortgage payment and $2,400 of card minimums, of which about $1,399 is interest. If the household is insolvent, compare any available proposal payment with those minimums and rerun the budget. These figures alone do not show that the household qualifies for a proposal or can afford to keep the home.
There are real reasons to sell anyway: the payment itself is unaffordable, the marriage is over, the job has moved, the house is the wrong house. Those are decisions, and the first table is how to make them with the number in view. What the second table says is that “I have too much debt” is not, on its own, a reason to sell the home.
One more thing the tables cannot show, and it changes the second one. If you keep the house and file a proposal, the equity in the house sets what the proposal has to offer, because your creditors measure your offer against what a bankruptcy would have returned them. In Ontario the amount of home equity that a bankruptcy leaves untouched is small, the consequences page prints the current figure, and it is a threshold, not a deduction: once your equity is over that line, all of it is exposed, not just the excess. It is measured on your own share of the equity, so for a co-owned home it is your share that is counted. So a household with $300,000 of equity does not get the same proposal payment as a household with none. How the payment is set is on How a consumer proposal payment is calculated, and it is the reason the calculator asks what you own.
Selling before you file: the mistakes that cannot be undone
If you are going to file, do not sell first without advice. The proceeds, who you pay with them, and who you transfer anything to in the months before filing are all things a trustee, and the law, will look at afterward. Some of them cannot be reversed.
This is the section people find too late, so it is written as the warning it is.
The proceeds. Money from a sale that is sitting in your account on the day you file is money the filing has to account for. In a bankruptcy it is property that passes to the trustee for your creditors, less what the law protects. In a proposal it is part of what your offer is measured against. Spending it down first, on ordinary living, is one thing. Moving it, gifting it, or paying it to a chosen creditor is another.
Paying one creditor ahead of the others. The instinct is to pay the person who has been kindest, or loudest, or is family. The law calls a payment that favours one creditor over the rest in the run-up to a filing a preference, and a trustee can unwind it: three months back for an ordinary creditor, and the law presumes the preference was intended; twelve months back for family or anyone else not at arm’s length, with no intent to prove at all. The kindness does not survive; the creditor pays it back into the estate, and you have made things worse for the person you meant to help. A consumer proposal does not itself unwind these payments, but the administrator investigates your affairs and reports on them, your creditors measure your offer against what a trustee could recover, and if a bankruptcy ever follows a failed proposal, the look-back periods are counted from the day the proposal was filed.
Transfers to family. Selling or signing the house, or anything else, to a relative for less than it is worth before you file is the mistake that cannot be undone. The law reaches transfers at undervalue, and it reaches further back where the other party is family: a transfer to a relative within a year of filing can be set aside with nothing more to prove, and within five years if you were insolvent at the time or meant to defeat your creditors. The house does not stay safely with your brother. It comes back, with a fight attached, and the fight is paid for out of what your creditors would have received.
The family loan. If a parent or a sibling lent you money to get through and you want to pay them back from the sale before you file, read the paragraph above again. They are a creditor like any other, except that the law does not let them vote in favour of your proposal, and paying them back in the year before you file is a payment your trustee can reverse. The conversation you owe them is on the house-poor page of this series.
None of this means you cannot sell before filing. It means the order of operations is: talk to a trustee, then sell, then file, with each step done in the light. A sale planned with the trustee is ordinary. A sale explained only after filing can create questions about the proceeds and who was paid; get advice before committing to it.
Selling during the proposal: what happens to the equity
The proposal’s own terms answer it, and where they are silent, the trustee and an amendment do. The equity does not vanish and it does not automatically go to your creditors; it goes where the proposal says.
When you filed, your proposal was valued against what you owned, including the house at the equity it then had. Some proposals say expressly what happens on a sale of the home: a share of the net proceeds to the proposal, or a lump sum that completes it early. Some say nothing, and then the question is whether the sale changes the basis of the deal enough that the terms have to be amended, which is a formal step with the trustee. Where the terms say the administrator must consent, the administrator does; where the parties want the terms themselves changed, an amendment is the mechanism and the creditors vote on it.
Three practical points to check. First, tell the trustee before the listing, not after the offer; if your proposal needs the administrator’s consent to a sale, a buyer’s lawyer will ask for it. Second, if the house has gone up in value since you filed, do not assume the increase is yours to keep; ask. Third, if you are considering using the sale proceeds to complete the proposal, ask the administrator how that works under its terms. Your credit after a consumer proposal or bankruptcy: R7, R9, and the honest answers explains the credit-reporting questions.
Selling after the proposal is done
Once your certificate of full performance is issued, the house is yours to sell like anyone else’s. Nothing in the Act bears on a sale after that.
The only questions left at that point are ordinary ones: what the next home costs, and whether you can get a mortgage for it. The second question is about your credit file, not the proposal, and the honest answer, with the timelines, is on Mortgages and a Consumer Proposal: Renewing, Refinancing, and Buying a Home.
Selling when the sale won’t clear the mortgages
You can still sell, the lender has to be part of it, and the shortfall that results is unsecured debt of exactly the kind a proposal is built to handle.
This is the other face of the question, and for the owner of a second property it is the usual one. The house, or the condo, is worth less than what is registered against it. A sale will not clear title on its own. The lender must agree to discharge its mortgage for less than it is owed, or the sale cannot close, and the difference does not disappear: in Ontario the lender can pursue you personally for the shortfall.
What changes the picture is that the shortfall is unsecured once the property is gone. In a consumer proposal or a bankruptcy, it becomes an ordinary unsecured claim, ranking alongside your other creditors and dealt with through the filing, instead of a debt that follows you without limit. And if the mortgage was already on your books when you filed, a shortfall from a later sale is dealt with inside the proposal, not on top of it: the lender files a claim for the balance and is paid like any other unsecured creditor. Put the timing to a trustee before the sale all the same, because the order of events decides which door is open. The arithmetic of holding an underwater property against selling it, month by month, is on the underwater condo page of this series; what happens if you stop paying and the lender sells it instead is on this site’s guide to what actually happens in a power of sale in Ontario.
Do you lose your house in a consumer proposal?
No. You keep it, you keep paying the mortgage, and your lender cannot treat the filing itself as a reason to end, change or call the mortgage.
This is the fear underneath every “should I sell” search, so it gets its own plain answer. In a consumer proposal nothing transfers; your house, your car and your savings stay yours from the day you file to the day you finish, and any secured lender you keep paying is simply left alone. The equity you hold affects what you pay; it does not affect whether you keep the home. The depth on keeping the house, renewing the mortgage during a proposal, and what lenders actually do, is on Mortgages and a Consumer Proposal: Renewing, Refinancing, and Buying a Home, and this page does not repeat it. What this page adds is the other half: selling is your choice, in your time, with the trustee in the room.
Common questions
Can you keep your house with a consumer proposal? Yes, so long as you keep paying the mortgage. The full answer, including renewal during the proposal, is on Mortgages and a Consumer Proposal: Renewing, Refinancing, and Buying a Home.
Should I sell my house to get out of debt? Run both tables above with your numbers first. If the sale clears the debt with something left and the house is the wrong house anyway, selling can be right. If the house fits and the unsecured debt is what is drowning you, a proposal may be a route to assess while the mortgage remains current.
What happens to the money when I sell during a proposal? It goes where your proposal’s terms say; where they are silent, the trustee and an amendment settle it. Ask before you list.
Can I sell my house to a family member before I file? Not for less than it is worth, and not without advice. A transfer to family below value within a year of filing can be reversed with nothing more to prove, and within five years if you were insolvent or meant to defeat your creditors.
What if my house is worth less than the mortgage? You can still sell with the lender’s agreement to discharge for less. The shortfall is unsecured and a proposal or bankruptcy deals with it, including a proposal already running if the mortgage was on your books when you filed. Ask first all the same.
The analysis behind this page
The rules on what a proposal does to your property, on the trustee’s certificate on title, and on keeping the home are set out on Disadvantages of consumer proposal filings: the real consequences, fear by fear, Mortgages and a Consumer Proposal: Renewing, Refinancing, and Buying a Home, and Consumer proposal versus bankruptcy, worked line by line. How equity sets the payment is on How a consumer proposal payment is calculated. The tables use explicitly illustrated rates and costs; they are not current market quotes. This page is general information about Ontario law and not advice about your situation.
Can’t find your answer here?
This site is built to answer these questions properly, and most of the time it will. If yours is not here, send it to me. I read them myself, and I answer them personally.
If what you want is to understand your next steps, I can help you with that directly in Ontario. The first thing I will do is assess whether you are insolvent under the Act; if you are not, I will say so. The other Licensed Insolvency Trustees I work with can assist across the rest of Canada.
