When you file a consumer proposal, your primary responsibility is making monthly payments to your unsecured creditors through your Licensed Insolvency Trustee (LIT). But what happens if your income drops and you can no longer afford your payments – or your creditors have rejected your proposal?
The good news is that you can change the terms of your consumer proposal and submit it again for approval. In this guide, we’ll explain how to amend your consumer proposal, including when it’s worth doing so.
Can a consumer proposal be amended?
Yes, it’s possible to amend your consumer proposal under certain circumstances. Amending a consumer proposal means asking creditors to change the terms. Suppose your financial situation changes drastically, and you can no longer afford your payments. In that case, you can request new terms to accommodate your tighter budget.
Modifying a proposal is done through your Licensed Insolvency Trustee (LIT). They will file the amendment and negotiate a new deal with your creditors. If they accept the offer, it takes effect immediately and can start making payments under the new terms. You don’t pay any extra fees to amend your proposal.
Your creditors may request amendments to your proposal, too. Though rare, creditors may vote against your proposal after it’s filed. To gain their approval, you’ll need to alter it to meet their demands or renegotiate the terms with assistance from your LIT.
What are some ways you can amend your consumer proposal?
The goal of amending a consumer proposal is to restructure your payment schedule to ensure you can keep up with your payments. There are three common changes you can make:
- Adjust the amount you have to pay your creditors
- Adjust the time you have to complete your payments.
- Adjust both the payment amount and timeline
For example, let’s say that your original proposal included $60,000 in unsecured debts. Your LIT secures a deal with your creditors, and you pay half of this amount over five years. This balance translates to $500 monthly payments over 60 months ($30,000 / 60). Let’s say that you experience a financial setback that reduces your income shortly after this agreement. In that case, you can ask your creditors if they’d be willing to forgive 70% of the debt instead of just 50%. This amendment would lower your monthly payment to $300, saving you $200.
What does it take to get a consumer proposal amendment approved?
To successfully amend your consumer proposal, you must demonstrate to creditors that you’re experiencing severe financial hardship. And this hardship is permanent or likely to remain for the long term. Some examples are job loss, divorce, and medical issues. These unexpected and unwelcome life events can quickly drain your bank account, leaving you struggling to keep up with your proposal payments.
A consumer proposal amendment requires approval from the majority of your unsecured creditors. After all, you’re altering the terms of a legally binding contract. Both sides of the proposal need to greenlight the change. Therefore, offering the most fair and reasonable terms you can manage is crucial, even though you’re financially in rough shape.
Luckily, creditors tend not to reject amendments to consumer proposals. They know doing so risks pushing the client into personal bankruptcy. Creditors typically receive less money from unpaid debts during a bankruptcy than they would during a consumer proposal. Whether you file an amendment or not, it’s often in their best interest for you to continue with your proposal.
What happens if your creditors reject your amended proposal?
If your creditors reject your amended proposal, it’s considered to have failed, and the agreement dissolves. As a result, your debts are reinstated (less the amount already paid under the proposal), which means creditors can resume collection actions against you.
Once you submit an amended proposal to your creditors for consideration, you cannot return to the old one. This rule applies whether they accept or reject it. So, if you’re considering altering the terms, ensure you discuss your plan with your LIT. They can help you determine if it’s worth making the changes or if it’s better to explore alternative solutions.
Amending vs Annulling a consumer proposal
Amending a consumer proposal involves modifying its terms, while annulling means cancelling it. When a proposal is annulled, the agreement is no longer in effect. If that occurs, you no longer have to make monthly payments to your LIT. However, you also lose all the benefits a consumer proposal provides. As a result:
- Your debts return (less any funds already paid to your creditors)
- Your debts can collect interest, fees, and penalties
- Creditors can resume their collection activities, including calling you and sending letters
- Creditors can take legal action against you
- Paused legal orders, such as wage garnishment, start again
Here are some reasons why your consumer proposal can get annulled:
- Late payments. During your proposal, you’re only allowed to miss two payments. As soon as you miss a third payment, you are considered to have defaulted on your proposal. This rule applies even if the late payments are not consecutive.
- Fraud. If the court deems you obtained approval for your proposal under fraudulent circumstances, they can declare it annulled.
- Breach of bankruptcy law. If you break a bankruptcy law, the court can intervene to cancel your proposal.
- Ineligibility. If you fail to meet the qualification requirements to file a consumer proposal, the court will cancel it.
- Failed amendment. As discussed in the previous section, your consumer proposal is annulled if you offer an amended version to your creditors and they reject it.
When should you amend your consumer proposal?
Under bankruptcy law, you’re only allowed to miss two proposal payments. So, if you’ve already reached this limit and you’re sure you’ll miss another one, contact your LIT to discuss your options. Don’t wait until you miss your next payment deadline.
The same applies if your income drops sharply because you lost your job or face other financial challenges. Notify your LIT immediately to see if they can arrange new payment terms with your creditors so you can get some relief.
Generally, amending a consumer proposal works best when you expect your financial setback to be temporary and you’re confident handling a reduced monthly payment. In such cases, an amendment can give you the breathing room you need to complete your proposal.
The bottom line on amending a consumer proposal
If your income falls substantially, it’s possible to amend your proposal. Your LIT will renegotiate a new deal with your creditors on your behalf. If successful, you’ll secure a lower monthly payment, have your term extended, or both.
The key is to be proactive. When you realize your drop in income will prevent you from making your proposal payments, contact your LIT right away. The sooner you take action, the sooner you can reach a solution for dealing with your debts. Depending on the severity of your situation, you can intentionally default on your proposal and file for bankruptcy instead. We encourage you to learn about the differences between a consumer proposal and bankruptcy.
At David Sklar & Associates our passionate team of LITs can help you choose the debt relief solution that works best for your unique situation. We’ll guide you through the process from start to finish and help you erase your debts for good. Contact us today to start your journey toward a brighter financial future.
