When you file a consumer proposal, you may end up unable to make the payments, or the proposal may not get accepted in the first place. The good news is that if your proposal is rejected or you fall behind, you can amend it and submit it again for approval.
To better prepare yourself for either situation, here’s what you need to know about consumer proposal amendments and annulments. At David Sklar & Associates, we offer Toronto consumer proposal services, bankruptcy services, and more.
What is a Consumer Proposal?
A consumer proposal is a legally binding agreement made between a debtor and their unsecured creditors. It allows the debtor to repay a portion of their total debts over a maximum of 5 years.
Licensed insolvency trustees like David Sklar & Associates are the only professionals that have the legal authority to conduct a consumer proposal. We specialize in consumer proposal services and personal bankruptcy in Ontario to help you manage your debts and set you up for future financial freedom.
Can a Consumer Proposal Be Amended?
The short answer is yes.
Amending a consumer proposal means asking creditors to change the terms of the proposal. This is done by the licensed insolvency trustee when a proposal is rejected by the creditors, or the debtor who has filed the proposal is no longer able to honour the previously agreed-upon terms.
We take care to ensure that our clients’ consumer proposals are realistic, and we give them excellent tools to help them better manage their finances. The vast majority of our consumer proposal clients are able to make all of their payments in full and on time.
That said, despite their best intentions, some clients find themselves needing to revisit the grounds of their proposal or unable to fulfill the terms of their proposal and make all the payments in full and on time. Causes for this are often reduced income, job loss, divorce or other major life events. In that case, amending a consumer proposal is a good course of action.
If you have filed for a consumer proposal and you’re unsure whether you can make your next payment, you should contact your trustee and tell them that you want to discuss your consumer proposal right away. Otherwise, you could risk a consumer proposal annulment.
What Is a Consumer Proposal Annulment?
Normally, under the Bankruptcy and Insolvency Act (BIA), a consumer proposal is automatically deemed annulled (cancelled) when three proposal payments are missed. Once the consumer proposal deemed annulment happens, the debtor and creditors go back to where they started, and the protections of the proposal disappear. Click the link to see what protections consumer proposals in Ontario offer to honest debtors.
How Do I Avoid Consumer Proposal Annulment?
How do I avoid consumer proposal annulment? If you have an inkling that you might miss your next payment, the first thing that you should do is talk to your trustee. The more notice they have, the better. They can help you figure out what your next best steps will be. Keeping your problem a secret won’t work out for you.
What they suggest will depend on the severity of your situation.
If your inability to pay is a temporary situation:
- As a debtor, you can miss up to two payments without having to amend your proposal. You will have to make up these missed payments before the end of your proposal.
- If the amount that’s unpaid is less than three months of payments, you can also increase the amount of future monthly payments to make up for the missed payments without resorting to an amendment.
If your inability to pay is permanent:
- If your current income cannot handle the original proposal terms, you can work with the Trustee and submit a consumer proposal amendment to your creditors. This amendment will reduce your monthly payments.
- If the amendment is rejected by the creditors, you should discuss filing for personal bankruptcy with the trustee.
Why Are Amendments for Consumer Proposals Rejected?
A consumer proposal amendment requires approval from the majority of creditors involved. After all, you are changing the terms of the original agreement. Both sides of the proposal need to accept the change.
So, why are amendments for consumer proposals rejected? The majority of creditors could feel like the amended terms are too low, or they don’t trust that the debtor will follow through. It’s the same reason why consumer proposals are rejected by creditors.
However, creditors tend not to reject the terms of consumer proposals because they know that the decision will push the client into personal bankruptcy. Creditors typically get paid less during a personal bankruptcy than they would during a consumer proposal. It’s often in their best interest for you to continue it.
What Happens If Your Proposal Is Annulled?
If your consumer proposal is annulled, that means that the agreement is no longer in effect. You do not need to make any more payments through the trustee, and the advantages of the proposal are eliminated:
- Your debt returns.
- Your debts can accrue interest and penalties.
- Creditors can revise collection strategies.
- Creditors can take legal action against you.
- If wage garnishment was paused, it begins again.
At this point, you may want to talk to your trustee about filing for personal bankruptcy to manage your debts.
However, if your financial situation takes a sudden turn for the better, you could try to reinstate the consumer proposal. You should only inquire about this if you’re sure that you can commit to the payment plan. After all, you don’t want to annul the agreement the second time around.
Sometimes, your proposal payments don’t go according to plan. If you’re having trouble honouring the terms of the proposal and making your payments in full or on time, you need to let your trustee know as soon as possible. There are ways that you can rectify the situation and get back on track.