If you file a Consumer Proposal in Canada, and then your financial situation changes – is it possible to cancel the Proposal?
Whether you inherit money and can afford to repay your debt, or your financial situation worsens and you want to file for Bankruptcy, there are several scenarios where it might make sense to cancel a Consumer Proposal. While it is possible to cancel, timing matters.
What is a Consumer Proposal?
A Consumer Proposal is a legally binding debt relief process that can only be administered by a Licensed Insolvency Trustee (LIT).
In a Proposal, you and your LIT develop an offer to pay your creditors a percentage of what you owe, extend the time you have to pay, or both. You have a maximum of five years to complete the terms of your Proposal.
How does a Consumer Proposal work?
After developing your Proposal, your LIT will file it with the Office of the Superintendent of Bankruptcy (OSB). As soon as your Proposal is filed, you can start taking advantage of several benefits:
- You can stop making payments to your unsecured creditors
- All lawsuits and wage garnishment will stop
Next, your LIT will submit your Proposal to your creditors who have 45 days to accept or reject it. If accepted, you start making payments to your LIT who will pay your creditors on your behalf. If rejected, you can update your Proposal and reapply or look into other debt relief solutions.
Can You Cancel Your Consumer Proposal?
Cancelling a Consumer Proposal is possible depending on when you decide to do it.
If you cancel within 60 days of filing, you can withdraw your Proposal before the court approves it. The 60-day timeframe is based on 45 days for your creditors to vote, and 15 days for court approval.
Once approved, you can no longer withdraw a Consumer Proposal. There are only a few ways to stop a Consumer Proposal once it’s been approved –
1) You can file for Bankruptcy, or
2) Your Consumer Proposal can be annulled.
How to cancel a Consumer Proposal?
To cancel your Proposal, contact your LIT in writing. Your LIT will communicate the withdrawal to your creditors and the court.
Cancelled Consumer Proposal vs. Annulment
The only time you can cancel (or withdraw) your Consumer Proposal is within the 60-day period before it’s approved. After this time, only the court can cancel your Proposal in the form of an annulment.
There are a few reasons why the court may choose to annul your Proposal:
- You miss three months of payments. If you miss three months’ worth of payments or fail to comply with the conditions of your Proposal, this can result in an automatic annulment. There is no court hearing, and your Proposal is automatically cancelled (annulled).
- A court review is requested. Your LIT, creditor, or another interested party can ask the courts to annul your Proposal for various reasons. According to the Bankruptcy and Insolvency Act, your Proposal WILL be annulled if you were not eligible to file a Proposal, approval was obtained through fraud, or the Proposal can’t continue without undue delay.
What are the Consequences of an Annulled Proposal?
If your Consumer Proposal is annulled by the court, you face several consequences including:
- Loss of payments. Any payments you’ve made during the Proposal will not be refunded.
- Loss of debt relief. You are back to owing the total amount of your debt.
- Loss of creditor protection. The protection you receive from a Proposal including protection from wage garnishment and legal actions is lost.
- Reduced credit score. Your credit score will drop to the lowest level and your credit report will note the annulment. This can make it harder for you to borrow money or get approved for credit in the future.
- No more Proposals. Once your Proposal is annulled, you can’t file again until you’ve paid your debts included in the original Proposal.
Why You Might Want to Cancel a Consumer Proposal
Several scenarios that might make you rethink if a Consumer Proposal is the right choice, including:
- Financial windfall. If you come into a sum of money through inheritance, the sale of your home, a gift, or something else, you may have enough money to pay off your debts. To avoid long-term damage to your credit, you might choose to pay your debt instead of going through with the Proposal.
- Can’t afford your payments. If your financial situation gets worse after filing a Proposal and you can’t afford your payments, you might want to switch to another debt relief solution, like Bankruptcy.
- Not the right option. Maybe you didn’t fully understand the details of a Consumer Proposal before filing or you decide that it’s not the right option for you. Perhaps a debt repayment plan or debt consolidation are better offers for your situation.
If any of these occur, you should cancel within the 60 day pre-approval period.
Is a Consumer Proposal in Canada Right for You?
If you’re considering a Consumer Proposal for debt relief, speak with a Licensed Insolvency Trustee to see if it’s the right solution for your needs. A LIT can assess your debt situation and give you an overview of the debt relief solutions that are available. Understanding the details of a Consumer Proposal and your responsibilities before committing can help you avoid a situation where you want to cancel or have it annulled.
For a free, no-obligation consultation, call Allan Marshall & Associates at 1-888-371-8900 or complete our online contact form.
