After dealing with overwhelming debt for years, you finally found relief with a Consumer Proposal. However, your financial situation has changed, and you can’t afford your Proposal payments. What happens next?
If you miss multiple payments or fail to adhere to your responsibilities, your Consumer Proposal may be annulled, meaning it’s no longer in effect. This can lead to several undesired consequences.
Here’s what you can expect if your Consumer Proposal is annulled, and what you can do to get back on track.
What is a Consumer Proposal?
A Consumer Proposal is a legal process administered by a Licensed Insolvency Trustee (LIT) that can provide debt relief. In a Proposal, you work with your LIT to create an offer to pay a percentage of what you owe, extend the time to repay your debts, or both.
If your creditors accept your Proposal, it’s your responsibility to make your payments on time, attend two financial counselling sessions, and adhere to any other conditions.
Reasons Your Consumer Proposal May Be Annulled?
Missing your payments is the main reason for an annulment. According to the Bankruptcy and Insolvency Act (BIA), if the terms of your Proposal call for regular monthly payments, your Proposal is deemed annulled when you miss three payments. After missing the third payment, your Proposal is annulled automatically.
Your Proposal can also be annulled if you fail to meet any of the other conditions of your proposal.
Consequences of a Consumer Proposal Annulment
If your Consumer Proposal is annulled there are several consequences including:
- Loss of debt relief. Once annulled, your Proposal is cancelled and you are back to owing your creditors your total debt.
- Loss of creditor protection. The cancellation of your Proposal means you lose all protections from your creditors. They can come after you with collection calls, wage garnishment, and legal actions.
- Payments are not refunded. Any payments you made during the Proposal will not be refunded.
- Negative impact on credit rating. Annulling your proposal will drop your credit score to the lowest rating impacting your ability to take out a personal loan or get credit in the future.
- Can’t make another Proposal. If your Proposal is annulled you can’t make another proposal until either the debts included in the original proposal are paid in full,or you’ve received permission from the Court.
What Can You Do If Your Consumer Proposal Is Annulled?
If you miss three payments and your Proposal is automatically annulled, you still have some options.
- Talk to your LIT. Reach out to your LIT immediately. Your LIT can help you determine what went wrong and how to get back on track.
- Revive your proposal. There are 2 ways to potentially have your Proposal revived:
- If you can demonstrate to your LIT that you have the ability to make up some or all of the overdue payments and maintain the payments moving forward, your LIT will contact your creditors within 30 days of the annulment to advise them of an Automatic Revival.
- An application can be made to the court to have the proposal revived. The creditors have the right to object to a Court Revival as well. Your creditors then have 60 days to object to the Automatic Revival.
- File for Bankruptcy. If you can’t revive your Proposal, you might have to consider filing for Bankruptcy to regain creditor protection and find debt relief.
Tips to Prevent a Consumer Proposal Annulment
To prevent an annulment from ever happening, consider the following tips:
- Be realistic about what you can afford. Before entering into a Consumer Proposal, make sure you’re realistic about what you can afford. Your LIT can help you determine what is reasonable based on your income and financial situation.
- Withdraw your Proposal. If you enter into a Consumer Proposal and quickly realize you can’t afford your payments, it’s possible to withdraw your Proposal before the court approves it. This is referred to as a Withdrawn Consumer Proposal.
- Keep a close eye on your budget. To avoid missing payments, it’s important you keep an eye on your finances so you know if you have enough money available.
- Automate your payments. You can also consider automating your payments so you don’t have to worry about forgetting.
- Amend your Proposal. If you can no longer afford your payments, speak with your LIT about amending your proposal. An amendment allows you to change your payments and/or the time you have to make payments. It’s up to your creditors to accept or reject your amendment.
- Fulfill the terms of your proposal. It’s your responsibility to attend two mandatory financial counselling sessions and fulfill any other terms listed in your Proposal.
- Communicate with your LIT. If your financial situation changes and you’re finding it difficult to make your monthly payment, speak to your LIT as soon as possible.
What Happens if Your Consumer Proposal Fails?
A Consumer Proposal default is a frustrating situation. You enter into a Proposal because of financial struggles. If you lose your job or encounter a medical emergency or other life change, your finances can get even worse, causing you to miss payments.
Unfortunately, when you default on your Proposal, it’s automatically annulled causing you to lose all creditor protections and get thrown back into the same precarious financial situation. This can feel incredibly stressful, but you do still have options.
The first step is to speak with your LIT who can review your situation and help you come up with a solution plan. You don’t have to deal with your debt alone. For a free no-obligation consultation call us at 1-888-371-8900 or contact us online. We Can Help™ .
