The client
A self-employed tradesperson in St. John's, carrying both personal and small-business unsecured debt from a rough stretch several years back, filed what he and everyone around him — including, at first, the lender reviewing his purchase application — called a “consumer proposal.” It was not one. His combined unsecured debt at the time of filing came to $267,000, above the dollar ceiling that defines a consumer proposal under the Bankruptcy and Insolvency Act, which meant his Licensed Insolvency Trustee had filed it as a Division I (ordinary) proposal instead — a different process, with a different completion standard.
Unsecured debt at filing
$267,000
Personal + small-business debt combined
Proposal type
Division I (ordinary) proposal
Filed because debt exceeded the consumer-proposal ceiling
Income now
$62,000/year
Stabilized, T4 employment
New purchase
$265,000, St. John's
10% down, insured
The problem
A Division II consumer proposal — the kind most lenders' policies are actually written around — is available only where total unsecured debt, excluding a mortgage on a principal residence, does not exceed a set ceiling. Above that ceiling, the same Licensed Insolvency Trustee files a Division I (ordinary) proposal instead, which is not complete the same way: it requires a formal meeting of creditors, a vote (a majority in number and two-thirds in value), and the court's approval before it binds anyone. A consumer proposal, by contrast, can become binding with no creditor meeting at all if none is requested.
What the first lender's seasoning policy assumed, and what was actually true
- ▸Assumed: a standard consumer proposal, complete once the trustee confirms payments finished
- ▸Actual: a Division I proposal, which is not complete until creditors voted to accept it and the court approved it
- ▸The trustee's own generic reference letter did not, on its face, distinguish which kind of proposal it was describing
The lender's underwriter was not wrong to have a seasoning policy for completed proposals — almost every file that crosses their desk really is a Division II consumer proposal, and the consumer proposal recovery timeline most brokers work from assumes exactly that. This one simply wasn't, and nothing in the paperwork the borrower had on hand said so plainly.
The numbers
At 10% down this is an insured purchase, so CMHC's GDS 39% / TDS 44% maximums are hard ceilings here, not lender preference.
| Structuring the insured loan | Amount |
|---|---|
| Purchase price | $265,000 |
| Down payment (10%) | −$26,500 |
| Base mortgage (90% LTV) | $238,500 |
| CMHC premium — 3.10% in the 85.01–90% LTV band, capitalized | +$7,394 |
| Total insured mortgage | $245,894 |
The minimum down payment at this price is $13,250 — 5% of the purchase price — so the $26,500 actually available clears it with room.
| Rate & payments | Figure |
|---|---|
| Contract rate — 5-year fixed (illustrative, not a quote) | 5.05% |
| Minimum qualifying rate | 7.05% |
| Monthly P&I at the qualifying rate | $1,730 |
| Monthly P&I at the contract rate | $1,437 |
The gross debt service ratio comes to 38.9% against the 39% ceiling — tight, but inside it, once the file's income and debt picture was confirmed clean of any surviving obligation from the proposal.
With no other consumer debt still owing, total debt service tracks GDS exactly here.
The solution
A mortgage broker licensed under Newfoundland and Labrador's Mortgage Brokerages and Brokers Act went back to the trustee for the specific document the file actually needed.
First, identified which kind of proposal had actually been filed by checking the debt total against the consumer-proposal ceiling, rather than accepting the borrower's own casual description of it as "a proposal."
Second, requested the Division I completion package specifically — confirmation of the creditors' vote and the court order approving the proposal, followed by the trustee's Certificate of Full Performance once every payment was made — instead of the generic reference letter the file started with.
Third, ran the lender's seasoning clock from the true completion date shown on the court-approved record, not from an assumed date based on when payments appeared to have started.
The outcome & the closing math
Approved and funded: insured at 90% LTV, 25-year amortization, on a 5-year fixed term, once the court-approved completion record replaced the generic trustee letter the file had started with.
The lender's seasoning policy, once correctly applied to the Division I record, was satisfied — the delay was entirely about proving completion with the right document, not about the borrower's actual timeline.
What to take from this file
- 01Not every insolvency "proposal" is a consumer proposal. Check the debt total at filing against the consumer-proposal ceiling before assuming which kind of proposal — and which completion standard — applies.
- 02A Division I proposal is not complete on payments alone. It needs a creditors' vote and court approval behind it, on top of the trustee's eventual Certificate of Full Performance.
- 03A generic trustee reference letter may not say which kind of proposal it is describing. Ask the trustee directly, and request the specific completion document the file's proposal type actually requires.
- 04The approval math runs at the qualifying rate, not the contract rate. This file qualifies at 7.05% and pays at 5.05%, a real gap between the ratio-deciding payment and the one the borrower will actually make.
- 05Check the minimum down payment against what's actually available even when the real issue on a file lies elsewhere — this one needed $13,250 minimum and had $26,500.
Sources
Every regulatory figure in this file traces to one of these primary sources. Client details and anything that varies by lender are illustrative, as flagged below.
- ▸CMHC — Purchase (Mortgage Loan Insurance) — default-insurance premium schedule by LTV band (25-year amortization).
- ▸CMHC — CMHC Home Start — minimum down payment tiers (5%/10%) and the $1.5M insured price cap.
- ▸OSFI — Minimum qualifying rate for uninsured mortgages — the minimum qualifying rate — greater of contract rate + 2% or 5.25%.
- ▸CMHC — CMHC Reviews Underwriting Criteria — GDS 39% / TDS 44% maximums and the 600 credit-score floor for insured files.
- ▸Provincial/territorial mortgage-broker legislation fetched directly (bclaws.gov.bc.ca, legisquebec.gouv.qc.ca, fcaa.gov.sk.ca, web2.gov.mb.ca, nslegislature.ca, assembly.nl.ca) plus FCNB's own site for NB and CanLII's index for PE — see notes for per-province method — provincial mortgage regulators and licence titles.
Illustrative in this file — lender-specific, not rules:
- ▸5.05% contract rate — rates move daily; not a quote.
- ▸lender's specific seasoning period after proposal completion — each lender sets its own post-insolvency seasoning policy.
Authority & provenance
How this case file was built
We publish the origin, the verification method and the reviewer for every case file, so you can judge how far to trust it before you rely on it with a client.
Where it comes from
Derived from files handled by Treadstone’s fulfillment desk and from scenarios contributed by partner brokerages. Names, employers, exact amounts and dates are changed so no client or file is identifiable.
Provenance: Composite — a pattern seen repeatedly on fulfilled files, not a single transaction.
What is verified
Every regulatory figure traces to a primary source listed above and was checked against it on the date shown. The arithmetic is recomputed by machine on every rebuild.
Anything that varies by lender is labelled illustrative rather than stated as a rule.
Who reviewed it
Reviewed for Canadian regulatory accuracy before publication, and re-checked whenever a cited rule changes.
Reviewed by: Nicholas Parson, Treadstone Associates — reviews every case file before publication.
This case file is professional reference material for licensed mortgage professionals. It is not advice to a borrower, and it is not a lender commitment. Insurer rules, qualifying rates and provincial taxes change — confirm the current position with the insurer, regulator or lender before you rely on any figure here in a live file.