When you're carrying a heavy load of debt, the pressure can feel relentless. Collection calls, mounting interest, missed payments—it’s enough to make anyone feel stuck. But if you’re a homeowner in Ontario, you might have more options than you think. One path people often hear about is a consumer proposal. Another, often overlooked but potentially better for homeowners, is debt consolidation using home equity.

So how do these solutions compare?

What Is a Consumer Proposal?

A consumer proposal is a formal, legally binding agreement filed through a Licensed Insolvency Trustee (LIT) in Canada. It’s designed to help people who are overwhelmed by unsecured debt—things like credit cards, lines of credit, personal loans, or unpaid taxes. If you qualify, you propose to your creditors that you’ll pay back a portion of what you owe, usually over a period of up to five years. Once the proposal is accepted, creditors can’t charge interest, sue you, or garnish your wages.

In short, it’s a bankruptcy alternative that helps you reduce your debt while protecting your assets. And it’s helped many Canadians avoid more serious financial consequences.

But it’s not the only option—and for homeowners, it’s rarely the first one we’d recommend.

Why Homeowners Should Think Twice

Here’s the thing: consumer proposals are most useful for people who don’t have access to low-cost financing or significant assets. If you’re renting, struggling with job loss, or have poor credit and no collateral, it might be the best option available.

But if you own a home—especially in Ontario, where property values are relatively high—there’s a good chance you qualify for a home equity loan or line of credit. And that could be a smarter, faster, and less damaging way to deal with debt.

Let’s say you owe $45,000 in high-interest credit card debt. Through a consumer proposal, you might negotiate that down to $25,000 paid over five years. That sounds like a win. But now imagine you have $100,000 in equity in your home. You might be able to borrow $25,000–$45,000 at an interest rate around 8% (or lower), consolidate all your debts into one monthly payment, and be debt-free years sooner—with far less damage to your credit.

In many cases, homeowners don’t need to file a consumer proposal. They just need a better debt solution.

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Consumer Proposal: How It Works

Still, it helps to understand exactly how a consumer proposal works, especially if you’re comparing it to debt consolidation.

Here’s what the process usually looks like:

Meet with a Licensed Insolvency Trustee (LIT): They’ll review your income, assets, debts, and monthly expenses to see if a proposal makes sense.

Draft the proposal: You offer creditors a reduced payment—maybe 30% to 70% of what you owe—spread over a period of up to 60 months.

Vote and approval: Creditors vote on whether to accept the deal. If the majority (by dollar value) agree, it becomes binding on all of them.

Make monthly payments: You send payments to the LIT, who distributes them to your creditors. You’ll also attend two mandatory financial counselling sessions.

Completion: Once you’ve made all the payments, your remaining debts are legally discharged.

During the process, interest stops accumulating, and collection actions (like lawsuits or wage garnishments) are frozen.

Types of Debts Covered in a Consumer Proposal

It’s important to know that a consumer proposal only covers unsecured debts. That means:

✅ Credit cards

✅ Personal loans

✅ Payday loans

✅ Lines of credit

✅ CRA tax debts

✅ Student loans older than 7 years

But it does not cover:

❌ Your mortgage

❌ Car loans (if the car is collateral)

❌ Child support or alimony

❌ Court fines or penalties

❌ Recent student loans (less than 7 years old)

So if most of your debt is tied to secured assets like your home or vehicle, a consumer proposal won’t solve the root problem.

Credit Impact of Consumer Proposals

One of the biggest drawbacks of a consumer proposal is how it affects your credit. Once your proposal is filed, you’ll get an R7 rating on your credit report. That tells lenders you’re repaying your debt under a formal agreement—not as bad as bankruptcy (which is R9), but still a major red flag.

This R7 stays on your credit report for three years after you’ve completed the proposal. That means if your proposal lasts five years, the mark could follow you around for eight years in total. During this time, it may be harder to qualify for a mortgage, car loan, or even a credit card.

With debt consolidation, especially through home equity, the story is different. You’re not settling your debt—you’re paying it off. That keeps your credit much stronger and often improves it over time.

When Debt Consolidation Is the Better Option

So when does it make sense to use home equity to consolidate debt instead of filing a proposal?

Here are a few common signs:

You own a home with at least 20% equity

You’re struggling with high-interest credit card or loan payments

You want to avoid the long-term damage to your credit

You still have a stable income and can afford monthly payments

You want a quicker path to financial recovery

At 360Lending, we work with homeowners every day who are in this exact situation. And more often than not, they’re surprised to learn they don’t need to file a proposal or declare bankruptcy—they just need to access their equity and simplify their finances.

Consumer Proposals vs. Debt Consolidation

If you're trying to decide between a consumer proposal and consolidating your debt using home equity, it helps to understand how the two options differ—and which one might actually work better for your situation.

What a Consumer Proposal Does:

Lets you settle unsecured debts (like credit cards, lines of credit, or taxes) by paying back only part of what you owe.

Stops interest, collections, and wage garnishments.

Spreads payments over up to 5 years, through a Licensed Insolvency Trustee (LIT).

Puts an R7 rating on your credit file, which stays for 3 years after the proposal ends (up to 8 years total).

Becomes a public record.

Missed payments (3 or more) can cause the whole deal to fall apart—and your debts come back in full.

What Home Equity Debt Consolidation Does:

Lets you pay off debt in full by borrowing against your home—at much lower interest rates.

Replaces multiple high-interest debts with one affordable monthly payment.

Has no credit damage if payments are made on time—many homeowners even see their credit improve.

Offers flexibility: you can pay off early, refinance later, or adjust your strategy as your finances improve.

Keeps everything private—no legal filing or public notice.

Works best if you have at least 20% equity in your home and stable income.

The Key Differences:

Credit Impact: A consumer proposal harms your credit long-term; consolidation usually improves it.

Flexibility: Proposals are rigid; home equity loans allow early payoffs and refinancing.

Cost: Proposal fees are baked into your monthly payments; home equity loans may have closing costs, but typically cost less over time.

Eligibility: Consumer proposals are for people with no other options. Consolidation is a better fit for homeowners with available equity.

Flexibility and Repayment Options

One of the strengths of both options is the ability to structure repayment over time. Consumer proposals are capped at five years, with fixed, interest-free payments. That sounds simple, but once you agree to the terms, you’re locked in. If your income increases, your payments don’t go down. If you miss three payments, the whole deal can collapse—and your creditors can come after you again.

With a home equity loan or HELOC, you get more flexibility. Most lenders allow early repayment without penalties. Some let you interest-only payments at first, then switch to principal and interest when you’re ready. Others offer fixed amortizations so you know exactly when you’ll be debt-free. If your finances improve, you can pay down the balance faster—without going through a trustee or asking for creditor permission.

This flexibility is especially valuable if your situation is temporary. For example, if you're recovering from a medical issue, waiting on a new job, or rebuilding after a divorce, a home equity loan gives you breathing room now and options later.

What If You Miss Payments?

Missed payments are never ideal—but how they’re handled depends on which path you choose.

In a consumer proposal, missing three monthly payments or falling behind on your schedule can lead to an annulment. That means the proposal is cancelled, and all your original debts (plus interest) come back. Collection agencies can resume calling, your credit takes a bigger hit, and you may be forced into bankruptcy as a last resort.

With a home equity loan or HELOC, lenders are more focused on your overall payment history and communication. If you miss a payment, most lenders will work with you to find a solution—especially if you’ve been proactive. The worst-case scenario is foreclosure, but this is extremely rare in Ontario and usually only happens after many months of non-payment and failed negotiations.

Bottom line: lenders are more likely to work with you than trustees or creditors in a proposal, especially if you’ve shown you’re trying to stay on track.

Paying Off Early: Big Win for Consolidation

Here’s another reason homeowners often prefer debt consolidation: it’s easier to pay off early.

In a consumer proposal, you can technically pay off early—but the structure isn’t designed to encourage it. You still have to go through the trustee, and it doesn’t immediately improve your credit until the full term is officially completed and cleared.

With a home equity loan or HELOC, early payoff is a straight-up advantage. Not only will you save on interest, but it also improves your debt-to-income ratio, your credit score, and your overall financial health. You can often refinance again at better rates once your debts are paid down.

If you're aiming to clean up your finances and rebuild fast, consolidation is the faster lane.

How to Get Started in Ontario

If you’re considering a consumer proposal, your first step is to contact a Licensed Insolvency Trustee (LIT). They’ll walk you through your debt, your income, and your options. If you qualify, they’ll submit your proposal, negotiate with your creditors, and administer your payments and counselling.

If you’re considering home equity debt consolidation, the process is more flexible and often quicker:

Assess your home equity: Add up your current mortgage balance and compare it to your home’s market value. If you’re under 80% loan-to-value, you likely qualify.

Talk to a mortgage broker: A broker (like us at 360Lending) can walk you through your options and help you choose the right product—HELOC, second mortgage, or refinance.

Submit documents: You’ll need income info, mortgage statements, and a property value estimate (we’ll help with that).

Review your debt: We’ll help you prioritize which debts to pay off and how to structure your new loan for the lowest possible monthly payment.

Close and consolidate: Funds are advanced, debts are paid off, and you now make just one easy monthly payment.

This process often takes less than two weeks—much faster than filing a proposal and waiting for creditor votes and court approval.

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