If your debt has become too much for you to handle then a consumer proposal can provide you with the debt relief you’ve been looking for. Most Licensed Insolvency Trustees will suggest that you look into filing a consumer proposal before you consider another more drastic option such as bankruptcy.
While filing a consumer proposal can provide you with the debt relief that you need, you’re still making a commitment to pay back a portion of the total debts you owe. This can sometimes lead to debtors being unable to keep up with their payments. When this happens, amending your consumer proposal may be your best option.
Can You Amend Your Consumer Proposal?
Yes, under the right circumstances, you can amend your consumer proposal. Amending a consumer proposal means asking your creditors to alter its conditions, which can occur if they deny the offer or you can’t fulfill your agreement in some way. You can apply for an amendment through your Licensed Insolvency Trustee (LIT), who will renegotiate a deal with the creditors on your behalf.
To qualify for an amendment to your consumer proposal, you usually need to offer your creditors a good deal or be experiencing a legitimate financial hardship, such as a loss of employment, divorce or another major life event that reduces your general income.
What Does It Mean To Amend Your Consumer Proposal?
As mentioned, amending a consumer proposal means requesting a change in its terms. Creditors may also deny your proposal to make their own amendments. Here are some common amendments you can make to a consumer proposal under the right conditions:
- How Much You Have To Pay – If you clearly can’t afford your payments or total proposal amount, your creditors may be willing to forgive more debt than they originally agreed to (as long as your income and finances prove your situation).
- The Time You Have To Pay – If the length of your consumer proposal is the issue, you can also ask your creditors for a shorter payment period. However, they may want you to make higher payments so they can collect your debt faster.
When Should You Amend Your Proposal?
A consumer proposal amendment is when you, as the debtor, ask your creditors to change the terms of your agreement because your financial situation has changed and you are no longer able to make your payments regularly.
As we mentioned before, by law you are allowed to miss two payments. If you’ve already missed these two payments and know that you will be unable to make the next payment, you should speak to your trustee about amending your proposal. You should also speak to your trustee about amending your proposal if you become unemployed or your income changes.
Understanding Consumer Proposals
As we discussed above, consumer proposals are often referred to as alternatives to personal bankruptcy. It is essentially an arrangement that is negotiated between you and your creditors. It is mediated through a licensed insolvency trustee.
A consumer proposal is a legally binding contract that provides you with instant protection from debt collectors while arranging for partial repayment for the total of unsecured debts you owe. When you file a consumer proposal, your creditors agree to forgive your balance after you’ve paid the agreed-upon portion of the total debt you owe.
Can You Miss A Consumer Proposal Payment?
By law, you are allowed to miss or defer two payments without any consequences. However, if you exceed more than these two missed payments, automatically your proposal will fail. Legally, if you fall behind in your payments by the equivalent of three monthly payments, on the day of your third payment, the consumer proposal will be annulled. So remember, to avoid your consumer proposal from ever being automatically cancelled, never miss three payments.
Amending vs Annulling
Amending your consumer proposal means altering its conditions while annulling means cancelling it altogether. This is something the court may do if you fail the proposal terms. For instance, if you have 3 payments in arrears, your proposal will be automatically annulled. Those payments don’t have to be consecutive either (the rule is cumulative).
Your consumer proposal might also get annulled if:
- The creditor is not eligible or breaks any part of your agreement
- The court’s approval was obtained fraudulently
- You can’t cover your payments without experiencing financial hardship
What Happens If Your Consumer Proposal Is Annulled?
Soon after you miss 3 payments, your consumer proposal will be “deemed annulled”. This is never a good thing, because it comes with some serious drawbacks, such as:
- Without protection from the court, your creditors can keep contacting you to collect any principal, interest and late fees you still owe them.
- If you don’t pay your debt, your creditors will also be allowed to take legal actions against you, like lawsuits and wage garnishment.
- You won’t get back any of the money you paid into the proposal, since your LIT has already used those funds to compensate your creditors.
- Your credit rating will drop from R7 to R9 (the worst of all). An annulment also reduces your credit score and stays on your credit report for at least 6 years.
What Should You Do If Your Can’t Afford Your Consumer Proposal?
To figure out how to best deal with your financial issues, you should assess how long they are likely to last. The length of your financial troubles can greatly affect how you should deal with them and whether or not an amendment to your consumer proposal is a good option.
For example, losing your job would most likely be considered a permanent or at least a long-term issue. However, if you are only transitioning from one job to another, with a brief gap in your employment, this would be a temporary and surmountable financial issue.
If ever there is a significant change in your income levels, keep in mind that it is possible to amend your proposal. When you realize that your shift in income will affect your ability to make your payments, you should not hesitate to contact your insolvency trustee. Do this immediately. Don’t wait until you’ve missed any payments. The sooner your trustee knows of your issue, the sooner you will be able to reach a solution by meeting to review your options.
Depending on the severity of your financial troubles, here are your options:
- Speak to your trustee about making an annulment to your consumer proposal.
- Intentionally miss your third payment, automatically causing your proposal to be annulled.
- File for bankruptcy
Amending Your Consumer Proposal FAQs
Is amending your consumer proposal the right option for you?
Can I amend a consumer proposal?
Can I file a second or third consumer proposal?
Can I get an annulled consumer proposal reinstated?
Getting the Help You Need
If you’re currently dealing with any type of debt or financial issue, Loans Canada can help you find experienced and professional debt experts who can guide you through a wide variety of debt and credit programs.
