Consumer proposals have helped countless Canadians settle unsecured debt through one structured repayment arrangement. But a proposal also comes with strict legal obligations. If payments are missed and the default threshold is reached under the Bankruptcy and Insolvency Act, the proposal is deemed annulled, which means the proposal is automatically cancelled by operation of law. That cancellation removes your legal protection quickly and allows creditors to resume collection action, including interest since the proposal was filed. The R7 also remains on the credit rating for six years from the filing date even though the proposal was annulled.
This is one of the most important parts of the consumer proposal process to understand. However, a proposal annulment does not always mean the same thing in every case, and it does not automatically lead to bankruptcy in every case. The effect of the annulment depends on the facts of each case, including whether the debtor was already an undischarged bankrupt when the consumer proposal was filed.
At David Sklar & Associates, Licensed Insolvency Trustees (LITs) help individuals review debt relief options such as consumer proposals and bankruptcy in Ontario. As with any insolvency proceeding in Canada, only an LIT can administer a consumer proposal or a bankruptcy.
What is consumer proposal annulment?
Consumer proposal annulment means the proposal is no longer in effect. In many cases, the law refers to this as a “deemed annulment”, which means the annulment happens automatically by operation of law once the statutory default threshold is reached, unless the court orders otherwise or another intervening step has been taken that changes the outcome.
This matters because an active consumer proposal typically gives legal protection from unsecured creditor action while it remains in force. Once the proposal is annulled, that legal protection ends and creditor rights are revived for the entire unpaid balance of their claims plus interest from the date of filing, subject to credit for amounts already received under the proposal.
When is a consumer proposal deemed annulled?
Under section 66.31 of the Bankruptcy and Insolvency Act, a consumer proposal is deemed annulled when the debtor defaults to the level set out in the legislation.
For proposals with monthly payments, the proposal is deemed annulled when the debtor is in default by the equivalent of three months of payments.
For proposals with payments less frequent than monthly, the rule is different but similar. If the proposal payments are due less frequently than monthly, the proposal is deemed annulled when the debtor is more than three months late on any required payment.
In plain language, many people think of it this way: once you fall behind by three months or the equivalent of three months payments, the proposal is at risk of automatic deemed annulment. That is why it is usually best to speak with your LIT as soon as payment trouble starts, not after several payments have been missed or many months go by.
What happens when a consumer proposal is annulled?
Once a consumer proposal is annulled, the legal payment arrangement with the unsecured creditors ends automatically and is no longer operating. Creditors’ rights are revived for the amount of their claims, plus interest from the filing date, less any dividends they have already received through the proposal.
That means creditors may resume their collection activity. In many cases, that includes nasty collection calls, legal actions, judgments, and wage garnishments.
Does annulment automatically mean bankruptcy?
Deemed annulment usually does not mean automatic bankruptcy. If the consumer proposal was filed by a person who was not already in bankruptcy, the annulment does not mean that the person becomes bankrupt automatically. After deemed annulment in this situation, the proposal ends, creditor rights are revived, and the debtor needs to review their situation with their LIT to consider their options at that point, which may include revival of the proposal, voluntary bankruptcy, or another debt solution that may be appropriate.
If the consumer proposal was filed by someone who was already bankrupt and not yet discharged, the legal effect of deemed annulment is very different. In that situation, the law provides that the person is deemed to have made an assignment in bankruptcy on the date of the deemed annulment.
This distinction is one of the many reasons that general online advice can be misleading and dangerous, and why it is so important to talk to the LIT. The correct answer depends on how the file started and what has happened since the proposal was filed.
Can a deemed annulled consumer proposal be revived?
In some situations, yes, a deemed annulled consumer proposal may be revived through either an LIT administrative revival or a court revival, depending on the circumstances.
LIT Administrative Revival
The law allows the LIT administrator to take steps to revive the proposal within thirty (30) days of deemed annulment if the LIT administrator believes it is appropriate to do so in the circumstances. Creditors are notified of this proposed revival, and if no objection is made within sixty (60) days, the proposal is automatically revived. The LIT administrator is not permitted to revive the proposal if: (i) more than thirty (30) days have passed since the deemed annulment, or (ii) any creditor objects to the revival within sixty (60) days of being notified. In either of these two scenarios, resort must be had to the court to ask for revival.
Court Revival
The administrator may also apply to court to ask for an order reviving the proposal. The court may revive the proposal if it considers that appropriate in the circumstances, and it may impose terms.
Do missed payments have to be paid first before revival?
Not necessarily in every case. The OSB’s position paper on this issue explains that revival may occur without first having to cure the default (i.e. without having to pay all the missed payments first). At the same time, however, the administrator may decide that missed payments should be addressed before revival proceeds, or that other conditions should be met first.
The same OSB position paper explains that, after revival, the default count effectively resets rather than carrying the original missed payment count forward toward another automatic annulment. However, the missed payments need to be dealt with before the proposal can be fully completed, which must occur in the original 5 year term, unless the proposal is amended or unless the court orders otherwise.
Can you file another consumer proposal after annulment?
This can be more restrictive than many people expect. The Bankruptcy and Insolvency Act expressly provides that, once a consumer proposal has been deemed annulled, the debtor may not make another consumer proposal until: (i) the debts are paid in full; (ii) the debts are discharged by a bankruptcy or Division I proposal; or (iii) the debtor obtains a court order permitting them to file another consumer proposal.
That is why early action matters. If a proposal is in danger of annulment, it is better to review options with the LIT before the default reaches the statutory threshold. Depending on the timing and circumstances, there are options, including: (i) amending the proposal before the deemed annulment occurs, (ii) reviving the proposal after the deemed annulment occurs, or (iii) another insolvency option such as bankruptcy.
What should you do if you are behind on proposal payments?
The first step is usually to speak with your LIT as soon as possible. A short-term cash-flow issue does not always mean the proposal cannot be saved, but the available remedies may narrow as time passes and as more payments are missed.
The LIT can review whether catch-up payments, an amendment, revival, or another debt solution may be more appropriate based on your circumstances. On the David Sklar & Associates website, the firm’s consumer proposal and bankruptcy pages explain that an LIT reviews your financial situation and discusses available options before recommending a path forward.
Why this matters for Ontario readers
For many people in Ontario, the main concerns after an annulment are practical concerns: whether creditors will start to pressure them again and what options still exist. That is why it helps to understand related issues such as collection calls, lawsuits, judgments, wage garnishments, consumer proposal costs, and whether personal bankruptcy may need to be considered if the proposal cannot be revived. David Sklar & Associates publishes guidance on each of these topics for Ontario readers.
Consumer proposal annulment: the key takeaway
Deemed annulment of a consumer proposal is a serious legal event, but it is not always the end of the road. Some debtors may qualify for revival. Others may require a different approach. The right next step depends on the timing of the default, whether the proposal was filed by someone already in bankruptcy, whether creditors have objected, and whether the missed payments can realistically be addressed.
For that reason, it is important to rely on advice from a Licensed Insolvency Trustee rather than making assumptions or relying on informal guidance. Only a LIT can administer a consumer proposal or bankruptcy in Canada. David Sklar & Associates is one such Ontario firm offering Licensed Insolvency Trustee services and educational guidance on debt relief options.
What if my proposal is a Division I proposal?
The above discussion relates solely to consumer proposals. If you are in the midst of a Division I proposal, the rules around annulment of the proposal and deemed bankruptcy are quite different, and you should speak to your LIT about those differences.
FAQ: Consumer Proposal Annulment in Canada
Annulment means the proposal is cancelled and no longer in effect. In many cases, this happens automatically when the legal default threshold is reached under the Bankruptcy and Insolvency Act.
“Deemed annulled” means the annulment happens automatically by operation of law once the required default threshold is reached regarding the payments.
For monthly-payment proposals, deemed annulment happens when the equivalent of three-monthly payments are in arrears. For less frequent payment schedules, the rule is based on being more than three months late on any payment.
The proposal stops operating, the protection is lifted, and creditors’ rights are revived for their unpaid claims plus interest from the filing date, less any amounts already received through the proposal.
Yes, creditor collection activity may resume after annulment because the proposal no longer provides the same legal protection from the creditors.
Not always. If you were not already an undischarged bankrupt when the proposal was filed, then annulment of your proposal does not automatically mean bankruptcy. If you were already an undischarged bankrupt when the proposal was filed, then annulment of the proposal does result in automatic bankruptcy.
Sometimes. Revival may be possible through an administrative process with the LIT, or by court order, depending on the circumstances.
Not necessarily. In some cases, revival may be possible before all missed payments are fully caught up, although the missed payments usually still need to be made up before the proposal can be completed.
That may not be available right away. The Bankruptcy and Insolvency Act states that another consumer proposal is not generally available until creditors’ claims are paid in full or otherwise extinguished under the Act, or unless a court order is obtained.
Possibly. If payment trouble begins before the proposal is deemed annulled, a Licensed Insolvency Trustee may be able to review and discuss whether an amended proposal or another solution is available in the circumstances. For this to work, the amended proposal must be filed before the deemed annulment.
Only a Licensed Insolvency Trustee can administer a consumer proposal or bankruptcy in Canada.
A consumer proposal already affects credit reporting as R7 for six (6) years from the filing date or three (3) years from completion, whichever is shorter; and annulment may create additional financial and credit reporting complications if the underlying debts are no longer being resolved under the proposal. The exact impact varies from person to person and depends on the person’s overall credit profile and next steps. This is a practical inference based on how proposals and unresolved debts interact, rather than a specific rule on credit scoring.
