The Consumer Proposal Trap: Why a 'Payment Relief Plan' is the Lifeline You Actually Need

February 12, 2026 | Posted by: Matt Broom-Hall

The Consumer Proposal Trap: Why a 'Payment Relief Plan' is the Lifeline You Actually Need

I just got off the phone with David (name changed) from Fort McMurray, and honestly? My heart is breaking for this guy.

Twenty years of paying down a mortgage. Two decades of building equity in his home. Guaranteed disability income that's more stable than most people's regular paycheques. And now he's stuck in a situation that didn't need to happen.

David and his wife were given advice that sounded helpful at the time, do a consumer proposal to 'clear up all the debt.' But that advice just locked them out of the one solution that could have actually saved them thousands of dollars.

This isn't a hit piece on consumer proposals. They absolutely have their place in debt relief. But when you're a homeowner with equity and stable income? That's when we need to talk about a different option, what I call a Payment Relief Plan.

The Fort McMurray Couple Who Got Trapped

Here's David's situation in a nutshell:

• Both he and his wife are on long-term disability (he's 57, she's 52)
• Combined guaranteed income: $9,600/month until they're 65
• They've owned their Fort McMurray home for 20 years
• First mortgage balance: $200,000 with B2B Bank at 4.14%
• Second mortgage with Citizens: $47,000 at a brutal interest rate
• Monthly payment on that second mortgage alone? $1,500

When health issues hit and bills started piling up, they went to someone for advice. That someone told them their 'best option' was to file consumer proposals.

So they did.

His wife finished hers. David still has two years left on his.

And now? They're handcuffed. They can't refinance. They can't consolidate that punishing $1,500/month second mortgage payment into their primary mortgage at a reasonable rate. They're just... stuck.

What Should Have Happened: The Payment Relief Plan

Here's what keeps me up at night about this case: David and his wife were perfect candidates for a mortgage refinance.

Let me break down what we call a Payment Relief Plan, because this is exactly the tool that could have changed everything for them:

A Payment Relief Plan is essentially a strategic mortgage refinance that consolidates high-interest debt into your mortgage at a much lower rate.

In David's case, here's what we could have done:

1. Refinanced their existing mortgages (both first and second)
2. Rolled that $47,000 second mortgage into the new mortgage
3. Given them ONE payment instead of two
4. Likely saved them $500-800/month (or more)

Instead of paying:

• $1,890/month (first mortgage)
• $1,500/month (second mortgage)
• Total: $3,390/month

They could have been paying something like $2,400-2,600/month for everything combined. Maybe even less depending on the amortization.

But now? With those consumer proposals on their credit? Most lenders won't touch them. Prime lenders typically require two years from discharge. Alternative lenders might work with immediate discharge. But with an active consumer proposal? The doors are basically closed.

Why Disability Income Actually WORKS for Mortgages

Here's something that surprised David when we talked: disability income is absolutely acceptable to mortgage lenders.

A lot of people assume that because they're on disability, they can't qualify for a mortgage or refinance. That's just not true.

Long-term disability income, especially when it's guaranteed by an insurance program through a former employer, is considered stable, verifiable income. In many ways, it's MORE reliable than a regular job because:

• It's guaranteed for a set period (in their case, until age 65)
• It doesn't fluctuate based on hours worked
• It's insured and documented
• It comes from reputable insurance companies

David and his wife had $9,600/month in combined guaranteed income. That's solid. That's mortgage-qualifying income all day long.

The consumer proposal was the problem. Not the disability income.

The Real Cost of 'Clearing Up Debt'

Consumer proposals can be powerful tools. The research backs this up, they can reduce unsecured debt by 70-80%, freeze interest at 0%, and stop collection actions immediately.

But here's what they don't tell you when you're a homeowner with equity:

A consumer proposal on your credit file will lock you out of refinancing options for years.

Think about what David is now facing:

• He's paying $1,500/month on that second mortgage (likely 10-15% interest or higher)
• Over the next two years until his consumer proposal is discharged, that's $36,000 in payments
• If the interest rate is around 12%, roughly $10,000+ of that is pure interest
• Even after discharge, he'll need to wait potentially another two years before most lenders will consider him
• That's four years of bleeding money on high-interest debt

Compare that to what a Payment Relief Plan would have cost:

• A one-time penalty to break the existing mortgage (likely $2,000-4,000)
• Refinancing fees (typically 1-2% of the new mortgage amount)
• But then immediate savings of $500-800/month

Do the math. The refinance would have paid for itself in 6-8 months. Everything after that? Pure savings.

When Consumer Proposals Make Sense (And When They Don't)

Look, I'm not here to trash consumer proposals entirely. They absolutely help people. If you're drowning in unsecured debt with no assets and no home equity, a consumer proposal might be your lifeline.

But if you're a homeowner with equity? You need to explore ALL your options first.

Here's a simple framework:

Consider a consumer proposal if:

• You have mostly unsecured debt (credit cards, personal loans, tax debt)
• You don't own a home or have minimal home equity
• You've exhausted other debt consolidation options
• You're facing collections or legal action

Consider a Payment Relief Plan (mortgage refinance) if:

• You own a home with equity
• You have stable, verifiable income (yes, even disability income)
• Your credit is still in reasonable shape
• You want to avoid years of credit restrictions

The key question: Do you have home equity you can tap into? If yes, that changes everything.

The Three-Payment Default Rule Nobody Mentions

Here's another gotcha with consumer proposals that bit David: the three-payment default rule.

If you miss three consecutive payments on your consumer proposal, it gets annulled. Your interest returns. Your original debt amounts come back. You're suddenly back where you started, except now your credit is MORE damaged.

With a traditional mortgage? You have more flexibility. Payment relief programs. Skip-a-payment options. Lenders who will work with you during temporary hardship.

Consumer proposals are rigid. You miss those payments, you're done.

What David Faces Now

When I talked to David, I had to give him the hard truth: his options right now are limited.

Reverse mortgage? His wife is only 52. Minimum age is 55, and they always use the youngest borrower's age. So that's out.

Traditional refinance? Not with an active consumer proposal. We'd need to wait two years for discharge, then potentially another two years after that.

Private lender? That's really the only option, and it's expensive. We're talking:

• Higher interest rates (possibly 8-12%)
• Lender fees (1-2% of the loan amount)
• Penalty to break the existing B2B mortgage
• You'd be in this expensive private mortgage for at least two years

It's not impossible, but it's painful. And it's expensive. And it didn't need to be this way.

The Payment Relief Plan Process (For Those Who Still Have Options)

If you're reading this and you're NOT in a consumer proposal yet: if you're just starting to feel the debt pressure: here's how a Payment Relief Plan typically works:

Step 1: Assessment We look at your total debt picture, your home equity, your income, and your credit.

Step 2: Calculate the Numbers We figure out what your new combined payment would be, how much you'd save monthly, and what the upfront costs would be.

Step 3: Present Your Options Sometimes it's a traditional refinance. Sometimes it's accessing equity. Sometimes it's a combination of strategies. We lay it all out.

Step 4: Execute the Plan We work with lenders who understand debt consolidation and who see the bigger picture: not just your credit score today, but your ability to succeed tomorrow.

Step 5: Set You Up for Success Once the refinance is done, we don't just disappear. We check in. We make sure you're on track. We help you build a plan so you don't end up back in the same situation.

How to Know You're Getting the Right Advice

After hearing David's story, I want you to ask yourself this question:

Is the person giving you advice looking at ALL your options, or just the one solution they specialize in?

Debt counselors specialize in consumer proposals and bankruptcies. That's their tool. So sometimes, every problem starts to look like it needs that particular solution.

But as an Alberta mortgage broker, my job is to look at your MORTGAGE options first. If you're a homeowner with equity, that equity is an asset. It's a resource. It's a tool we can use to solve problems.

Before you sign anything: before you commit to a consumer proposal or any debt relief program: ask:

1. 'Do I own a home?'
2. 'Do I have equity in that home?'
3. 'Do I have stable income?' (Including disability, pension, etc.)
4. 'Have I talked to a mortgage broker about refinancing options?'

If you answered yes to the first three and no to the fourth, you're missing a crucial piece of the puzzle.

Let's Make Sure This Doesn't Happen to You

David's situation breaks my heart because it was avoidable. With the right advice at the right time, he and his wife could be in a completely different financial position today.

They'd have lower monthly payments. More breathing room. Less stress. And a clear path forward.

Instead, they're stuck: at least for now: paying that brutal second mortgage while watching the years tick by until they can finally qualify for a refinance.

Don't let this be your story.

If you're feeling the pressure of high-interest debt and you own a home in Alberta: whether you're in Fort McMurray, Edmonton, Calgary, or anywhere in between: let's talk before you make any big decisions.

A 15-minute conversation could save you years of financial stress and thousands of dollars.

Because here's the truth: you might have more options than you think. And you deserve advice that looks at ALL of them.

Book a discovery call with Hello Mortgage and let's figure out what your best path forward actually is. Not just one option. All of them.

Your home equity might just be the lifeline you've been looking for.

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