A consumer proposal is a type of debt relief solution in Canada. While a consumer proposal is an extreme option for debt relief, it isn’t as extreme as declaring bankruptcy. This mode of debt relief facilities the settlement of your debts with your creditors, the goal is to reduce the amount of money you have to pay back.
While a consumer proposal is a great debt relief option and could prevent you from having to file for bankruptcy, it is possible to have your consumer proposal annulled and you could lose all the benefits. Breaching the terms and conditions of your consumer proposal will lead to you getting the deal annulled which can mean a disaster for your finances. This is why it’s of the utmost importance that you know how to prevent this from happening to you.
How To Avoid A Consumer Proposal Annulment?
Once you enter a consumer proposal, it’s best to act responsibly and work with your Licensed Insolvency Trustee (LIT) to keep it from being annulled. Luckily, there are many ways to avoid a consumer proposal annulment, including these measures:
Ensure The Payments Fit Your Budget
- Don’t begin a consumer proposal until your income can cover our payments
- Opt for a longer-term (up to 5 years or 60 months) to decrease your payments
- Align your payments with your paycheques
Don’t Miss Payments
- Sign up for automatic payments
- Make extra payments each month (penalty-free)
- Pay ahead of schedule (if you anticipate a lack of funds in the future)
Amend Your Proposal
- Discuss an amendment (change in your consumer proposal) with your LIT
- Ask about the consequences of an amendment, versus failing to meet your proposal obligations
- Request different proposal conditions from your creditors (sometimes possible)
Why Are Consumer Proposals Annulled?
A consumer proposal can usually be annulled when one of the three specific terms is not honoured. This is to say that abiding by all the rules of the proposal is the only way in which you can keep the agreement going until you’ve regained financial stability.
Failure To File Your Taxes
The first reason why a consumer proposal can be annulled is the failure to file your income tax return. In the stipulations of the proposal, you are required to file your income tax return and ensure you meet all the tax regulations and criteria of the province you live in.
This is what allows the authorities to substantiate your status and uphold the agreement of the consumer proposal. Failure to submit the return thus serves as a breach of the rules which can automatically lead to the annulment of the deal.
Failure To Make Payments
The second factor that can lead to the annulment of your consumer proposal agreement is the failure to pay the agreed payments. With a consumer proposal, the debts are usually not written off in their entirety but they are instead reduced to amounts that can be paid back comfortably while the rest of the debt may be forgiven.
This gives you the chance to comfortably submit your payments and be rid of your debts with ease. Failure to pay back the agreed-upon amount is what can lead to the annulment of your consumer proposal agreement which will in turn reinstate all the fees and interest that you would have had to pay if you had never filed for a consumer proposal in the first place.
How Many Payments Can You Miss Before Being Annulled?
If you miss 3 payments, your consumer proposal will be automatically annulled. The process only ends after you obtain your Certificate of Full Performance. Under the Bankruptcy & Insolvency Act (BIA), you can defer up to 2 consumer proposal payments.
Are Missed Proposal Payments Consecutive?
No! Your missed payments do not have to be consecutive for your consumer proposal to get annulled. The rule is cumulative, so if you’re behind on a total of 3 payments, your agreement is cancelled. That’s why making early or extra payments is a good idea.
The third scenario that can lead to the annulment of a consumer proposal is a court order. Annulment by court order is normally exercised when you go for up to 3 months without making a payment of the agreed amount. Not making your payments on time will force the court to declare that the agreement is made null and void, and this normally indicates that all the payable fees are reinstated.
To avoid this, delayed and late payments should be avoided at all costs. If for any reason you project that you may not be able to submit the agreed amount due to a specific reason concerning your income you need to report this to your trustee right away to discuss your options. It is possible to reduce your payments and extend your term so that you can continue to make payments on time.
Other Reasons Your Consumer Proposal May Be Annuled
If you break the 3-payment rule, your LIT or creditor can file an application with the court to have your consumer proposal annulled. This can also happen when:
- The agreement was obtained fraudulently
- You can’t make any more payments due to financial hardship
- Your creditor wasn’t eligible for the proposal
- Your creditor breaks any of the proposal’s conditions
What Happens When Your Consumer Proposal In Annulled?
Before you file for a consumer proposal, it’s important to get proper advice from a LIT or credit counsellor, since an annulment could have serious consequences, such as:
- You Still Owe The Money – Annulling a consumer proposal doesn’t make debts disappear. You must still pay back any interest, fees or other costs owed to your creditors and the courts. Plus, the funds you’ve already paid won’t be returned.
- No More Creditor Protection – Once your agreement ends, your creditors can continue to seek payment from you, by any legal means necessary. This could lead to debt collections, lawsuits, wage garnishment and, eventually, bankruptcy.
- Can Hurt Your Credit Score – A consumer proposal may have already caused a large drop in your credit score. If you let it get annulled, your creditors can start reporting your defaulted payments again, which could make it decline further.
What Can You Do If Your Consumer Proposal Is Annulled?
If your first agreement gets annulled, you can’t file for a second consumer proposal to cover your remaining debts. Here are your options following an annulment:
- Revive Your Proposal – If you apply within 30 days of the annulment, your LIT can revive your agreement. You can also do this through the courts after 30 days.
- File For Bankruptcy – If your debts are still bad after the annulment, you may need to declare bankruptcy, which can be worse for your credit and finances.
- Haggle With Your Creditors – While creditors can now contact you for payment, you might be able to negotiate a more affordable way to settle your debts with them.
- Ignore Your Debts – If your debts are so old or small that your lender isn’t likely to take legal action, you can also wait until they leave your credit report naturally. However, this is not recommended.
How To Revive An Annulled Consumer Proposal?
If you act fast, it may be possible to revive your consumer proposal before too much damage occurs (even after it’s been annulled). There are two ways you can do this:
- Without The Court – The Bankruptcy & Insolvency Act gives you 30 days to ask your LIT for a revival, without involving the court. The LIT will negotiate with your creditors to arrange a new payment plan. To qualify, you must pay back any proposal arrears (unpaid debt) and be able to cover all your new payments.
- With The Court – After 30 days, you must apply for your proposal revival through the bankruptcy court, which can be more expensive if you need a lawyer. Once again, your finances will be evaluated to determine your eligibility and chances of deferring payments. You can also file a new proposal, but creditors can object.
Why You Should Always Avoid An Annulment
A consumer proposal can help you regain control over your finances and get your life back on track. Therefore if you are given this second chance it is extremely important that you do not do anything that might end in an annulment.
Educating yourself on the reasons why a consumer proposal might get annulled is one of the best ways to avoid an annulment altogether. Capitalize on this second chance by staying within the rules and regulations set out for you by always making your payments on time and filing your tax return every year until your consumer proposal has been completed.
Consumer Proposal Annulment FAQs
When are payments required after reviving my consumer proposal?
Can I revive my consumer proposal if I haven’t fixed my finances?
How many times can I file for a consumer proposal?
Will an annulled consumer proposal show up on my credit report?
- During your proposal, your credit rating will already be at R7. An annulment will drop your credit rating to an R9 (the lowest rank) until you revive it.
- Your creditors can start reporting your late payments to the credit bureaus again, which may cause your credit score to decrease further.
- The annulment will stay on your credit report for at least 6 years. If your debt eventually goes to collections, it can appear on your report for multiple years too.
Remember, a consumer proposal is a legally-binding debt management procedure that has some serious defaulting consequences. That’s why it’s essential to fulfill all your court-assigned duties, like making your payments on time and avoiding annulments.